Correlation Between Commercial Metals and Companhia Siderurgica

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

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

Diversification Opportunities for Commercial Metals and Companhia Siderurgica

-0.21

Correlation Coefficient

Commercial Metals  Companhia Siderurgica

Very good diversification

The 3 months correlation between Commercial and Companhia is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Companhia Siderurgica Nacional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Siderurgica and Commercial Metals 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 Commercial Metals are associated (or correlated) with Companhia Siderurgica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Siderurgica has no effect on the direction of Commercial Metals i.e., Commercial Metals and Companhia Siderurgica go up and down completely randomly.

Pair Corralation between Commercial Metals and Companhia Siderurgica

Considering the 90-day investment horizon Commercial Metals is expected to under-perform the Companhia Siderurgica. But the stock apears to be less risky and, when comparing its historical volatility, Commercial Metals is 1.51 times less risky than Companhia Siderurgica. The stock trades about -0.03 of its potential returns per unit of risk. The Companhia Siderurgica Nacional is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  145.00  in Companhia Siderurgica Nacional on December 30, 2024 and sell it today you would earn a total of  26.00  from holding Companhia Siderurgica Nacional or generate 17.93% return on investment over 90 days.

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

Commercial Metals  vs.  Companhia Siderurgica Nacional

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Companhia Siderurgica

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Siderurgica Nacional are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Companhia Siderurgica exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commercial Metals and Companhia Siderurgica

The main advantage of trading using opposite Commercial Metals and Companhia Siderurgica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commercial Metals position performs unexpectedly, Companhia Siderurgica 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 Companhia Siderurgica will offset losses from the drop in Companhia Siderurgica's long position.

The idea behind Commercial Metals and Companhia Siderurgica Nacional 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.