Correlation Between BlueScope Steel and Gerdau SA

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

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

Diversification Opportunities for BlueScope Steel and Gerdau SA

0.44

Correlation Coefficient

BlueScope Steel  Gerdau SA

Very weak diversification

The 3 months correlation between BlueScope and Gerdau is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Gerdau SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA ADR and BlueScope Steel 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 BlueScope Steel Limited 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 ADR has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Gerdau SA go up and down completely randomly.

Pair Corralation between BlueScope Steel and Gerdau SA

Assuming the 90 days horizon BlueScope Steel Limited is expected to under-perform the Gerdau SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, BlueScope Steel Limited is 1.44 times less risky than Gerdau SA. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Gerdau SA ADR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  308.00  in Gerdau SA ADR on October 23, 2024 and sell it today you would lose (25.00) from holding Gerdau SA ADR or give up 8.12% of portfolio value over 90 days.

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

BlueScope Steel Limited  vs.  Gerdau SA ADR

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Gerdau SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BlueScope Steel and Gerdau SA

The main advantage of trading using opposite BlueScope Steel and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlueScope Steel 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 BlueScope Steel Limited and Gerdau SA ADR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.