Correlation Between Ternium SA and Companhia Siderrgica

Can any of the company-specific risk be diversified away by investing in both Ternium SA and Companhia Siderrgica 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 Ternium SA and Companhia Siderrgica into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ternium SA and Companhia Siderrgica Nacional, you can compare the effects of market volatilities on Ternium SA and Companhia Siderrgica 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 Ternium SA with a short position of Companhia Siderrgica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ternium SA and Companhia Siderrgica.

Diversification Opportunities for Ternium SA and Companhia Siderrgica

0.34

Correlation Coefficient

Ternium SA  Companhia Siderrgica

Weak diversification

The 3 months correlation between Ternium and Companhia is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA and Companhia Siderrgica Nacional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Siderrgica and Ternium SA 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 Ternium SA are associated (or correlated) with Companhia Siderrgica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Siderrgica has no effect on the direction of Ternium SA i.e., Ternium SA and Companhia Siderrgica go up and down completely randomly.

Pair Corralation between Ternium SA and Companhia Siderrgica

Assuming the 90 days horizon Ternium SA is expected to under-perform the Companhia Siderrgica. But the stock apears to be less risky and, when comparing its historical volatility, Ternium SA is 1.76 times less risky than Companhia Siderrgica. The stock trades about -0.15 of its potential returns per unit of risk. The Companhia Siderrgica Nacional is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,756  in Companhia Siderrgica Nacional on September 27, 2024 and sell it today you would lose (56.00) from holding Companhia Siderrgica Nacional or give up 1.49% of portfolio value over 90 days.

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

Ternium SA  vs.  Companhia Siderrgica Nacional

Ternium SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ternium SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Companhia Siderrgica

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ternium SA and Companhia Siderrgica

The main advantage of trading using opposite Ternium SA and Companhia Siderrgica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ternium SA position performs unexpectedly, Companhia Siderrgica 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 Companhia Siderrgica will offset losses from the drop in Companhia Siderrgica's long position.

The idea behind Ternium SA and Companhia Siderrgica Nacional 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.