Correlation Between Companhia Paranaense and Gerdau SA

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

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

Diversification Opportunities for Companhia Paranaense and Gerdau SA

-0.25

Correlation Coefficient

Companhia Paranaense  Gerdau SA

Very good diversification

The 3 months correlation between Companhia and Gerdau is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Companhia Paranaense 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 Companhia Paranaense de 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 Companhia Paranaense i.e., Companhia Paranaense and Gerdau SA go up and down completely randomly.

Pair Corralation between Companhia Paranaense and Gerdau SA

Assuming the 90 days trading horizon Companhia Paranaense de is expected to generate 0.86 times more return on investment than Gerdau SA. However, Companhia Paranaense de is 1.16 times less risky than Gerdau SA. It trades about 0.05 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.19 per unit of risk. If you would invest  854.00  in Companhia Paranaense de on December 2, 2024 and sell it today you would earn a total of  37.00  from holding Companhia Paranaense de or generate 4.33% return on investment over 90 days.

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

Companhia Paranaense de  vs.  Gerdau SA

Companhia Paranaense

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Paranaense de are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Companhia Paranaense is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Companhia Paranaense and Gerdau SA

The main advantage of trading using opposite Companhia Paranaense and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia Paranaense 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 Companhia Paranaense de 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.