Correlation Between Procter Gamble and Gerdau SA

Can any of the company-specific risk be diversified away by investing in both Procter Gamble and Gerdau SA at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Procter Gamble and Gerdau SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Procter Gamble DRC and Gerdau SA, you can compare the effects of market volatilities on Procter Gamble and Gerdau SA and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Procter Gamble with a short position of Gerdau SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Gerdau SA.

Diversification Opportunities for Procter Gamble and Gerdau SA

0.63

Correlation Coefficient

Procter Gamble  Gerdau SA

Poor diversification

The 3 months correlation between Procter and Gerdau is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Procter Gamble is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Procter Gamble DRC are associated (or correlated) with Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA has no effect on the direction of Procter Gamble i.e., Procter Gamble and Gerdau SA go up and down completely randomly.

Pair Corralation between Procter Gamble and Gerdau SA

Assuming the 90 days horizon Procter Gamble DRC is expected to under-perform the Gerdau SA. But the stock apears to be less risky and, when comparing its historical volatility, Procter Gamble DRC is 1.45 times less risky than Gerdau SA. The stock trades about 0.0 of its potential returns per unit of risk. The Gerdau SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,799  in Gerdau SA on September 28, 2024 and sell it today you would earn a total of  2.00  from holding Gerdau SA or generate 0.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Procter Gamble DRC  vs.  Gerdau SA

Procter Gamble DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procter Gamble DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Procter Gamble and Gerdau SA

The main advantage of trading using opposite Procter Gamble and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, Gerdau SA can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Gerdau SA will offset losses from the drop in Gerdau SA's long position.

The idea behind Procter Gamble DRC and Gerdau SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.