Correlation Between China Hongqiao and Gerdau SA

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

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

Diversification Opportunities for China Hongqiao and Gerdau SA

0.26

Correlation Coefficient

China Hongqiao  Gerdau SA

Modest diversification

The 3 months correlation between China and Gerdau is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Hongqiao Group 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 China Hongqiao 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 China Hongqiao Group 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 China Hongqiao i.e., China Hongqiao and Gerdau SA go up and down completely randomly.

Pair Corralation between China Hongqiao and Gerdau SA

Assuming the 90 days horizon China Hongqiao Group is expected to generate 1.63 times more return on investment than Gerdau SA. However, China Hongqiao is 1.63 times more volatile than Gerdau SA ADR. It trades about 0.06 of its potential returns per unit of risk. Gerdau SA ADR is currently generating about -0.01 per unit of risk. If you would invest  79.00  in China Hongqiao Group on December 2, 2024 and sell it today you would earn a total of  81.00  from holding China Hongqiao Group or generate 102.53% return on investment over 90 days.

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

China Hongqiao Group  vs.  Gerdau SA ADR

China Hongqiao Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Hongqiao Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Hongqiao is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gerdau SA ADR

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Hongqiao and Gerdau SA

The main advantage of trading using opposite China Hongqiao and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Hongqiao 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 China Hongqiao Group 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..