Correlation Between ArcelorMittal and Gerdau SA

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

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

Diversification Opportunities for ArcelorMittal and Gerdau SA

-0.5

Correlation Coefficient

ArcelorMittal  Gerdau SA

Very good diversification

The 3 months correlation between ArcelorMittal and Gerdau is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and ArcelorMittal 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 ArcelorMittal SA 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 ArcelorMittal i.e., ArcelorMittal and Gerdau SA go up and down completely randomly.

Pair Corralation between ArcelorMittal and Gerdau SA

Assuming the 90 days horizon ArcelorMittal SA is expected to generate 1.21 times more return on investment than Gerdau SA. However, ArcelorMittal is 1.21 times more volatile than Gerdau SA. It trades about 0.15 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.05 per unit of risk. If you would invest  2,539  in ArcelorMittal SA on December 30, 2024 and sell it today you would earn a total of  521.00  from holding ArcelorMittal SA or generate 20.52% return on investment over 90 days.

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

ArcelorMittal SA  vs.  Gerdau SA

ArcelorMittal SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ArcelorMittal reported solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA

Risk-Adjusted Performance

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 comparatively stable basic indicators, Gerdau SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ArcelorMittal and Gerdau SA

The main advantage of trading using opposite ArcelorMittal and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.