Correlation Between Companhia Paranaense and Metalurgica Gerdau

Can any of the company-specific risk be diversified away by investing in both Companhia Paranaense and Metalurgica Gerdau 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 Metalurgica Gerdau 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 Metalurgica Gerdau SA, you can compare the effects of market volatilities on Companhia Paranaense and Metalurgica Gerdau 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 Metalurgica Gerdau. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia Paranaense and Metalurgica Gerdau.

Diversification Opportunities for Companhia Paranaense and Metalurgica Gerdau

-0.3

Correlation Coefficient

Companhia Paranaense  Metalurgica Gerdau

Very good diversification

The 3 months correlation between Companhia and Metalurgica is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau 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 Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of Companhia Paranaense i.e., Companhia Paranaense and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between Companhia Paranaense and Metalurgica Gerdau

Assuming the 90 days trading horizon Companhia Paranaense de is expected to generate 1.21 times more return on investment than Metalurgica Gerdau. However, Companhia Paranaense is 1.21 times more volatile than Metalurgica Gerdau SA. It trades about -0.1 of its potential returns per unit of risk. Metalurgica Gerdau SA is currently generating about -0.38 per unit of risk. If you would invest  957.00  in Companhia Paranaense de on October 4, 2024 and sell it today you would lose (42.00) from holding Companhia Paranaense de or give up 4.39% of portfolio value over 90 days.

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

Companhia Paranaense de  vs.  Metalurgica Gerdau SA

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Metalurgica Gerdau

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalurgica Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Metalurgica Gerdau is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Companhia Paranaense and Metalurgica Gerdau

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

The idea behind Companhia Paranaense de and Metalurgica 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.