Correlation Between Cleveland Cliffs and Gerdau SA

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

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

Diversification Opportunities for Cleveland Cliffs and Gerdau SA

0.06

Correlation Coefficient

Cleveland Cliffs  Gerdau SA

Significant diversification

The 3 months correlation between Cleveland and Gerdau is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs i.e., Cleveland Cliffs and Gerdau SA go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and Gerdau SA

Considering the 90-day investment horizon Cleveland Cliffs is expected to under-perform the Gerdau SA. In addition to that, Cleveland Cliffs is 2.05 times more volatile than Gerdau SA ADR. It trades about -0.01 of its total potential returns per unit of risk. Gerdau SA ADR is currently generating about 0.02 per unit of volatility. If you would invest  288.00  in Gerdau SA ADR on December 29, 2024 and sell it today you would earn a total of  4.00  from holding Gerdau SA ADR or generate 1.39% return on investment over 90 days.

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

Cleveland Cliffs  vs.  Gerdau SA ADR

Cleveland Cliffs

Risk-Adjusted Performance

Very Weak

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

Gerdau SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cleveland Cliffs and Gerdau SA

The main advantage of trading using opposite Cleveland Cliffs and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs 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 Cleveland Cliffs 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..