Correlation Between Applied Materials and Gerdau SA

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

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

Diversification Opportunities for Applied Materials and Gerdau SA

-0.31

Correlation Coefficient

Applied Materials  Gerdau SA

Very good diversification

The 3 months correlation between Applied and Gerdau is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Gerdau SA go up and down completely randomly.

Pair Corralation between Applied Materials and Gerdau SA

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Gerdau SA. In addition to that, Applied Materials is 2.03 times more volatile than Gerdau SA. It trades about -0.17 of its total potential returns per unit of risk. Gerdau SA is currently generating about -0.06 per unit of volatility. If you would invest  6,900  in Gerdau SA on September 23, 2024 and sell it today you would lose (99.00) from holding Gerdau SA or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Applied Materials  vs.  Gerdau SA

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Gerdau SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Applied Materials and Gerdau SA

The main advantage of trading using opposite Applied Materials and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.