Correlation Between FedEx and Gerdau SA

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

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

Diversification Opportunities for FedEx and Gerdau SA

0.68

Correlation Coefficient

FedEx  Gerdau SA

Poor diversification

The 3 months correlation between FedEx and Gerdau is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding FedEx and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and FedEx 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 FedEx 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 FedEx i.e., FedEx and Gerdau SA go up and down completely randomly.

Pair Corralation between FedEx and Gerdau SA

Assuming the 90 days trading horizon FedEx is expected to generate 0.8 times more return on investment than Gerdau SA. However, FedEx is 1.25 times less risky than Gerdau SA. It trades about 0.18 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.01 per unit of risk. If you would invest  142,800  in FedEx on September 29, 2024 and sell it today you would earn a total of  25,512  from holding FedEx or generate 17.87% return on investment over 90 days.

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

FedEx  vs.  Gerdau SA

FedEx

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FedEx are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, FedEx sustained solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Gerdau SA 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 FedEx and Gerdau SA

The main advantage of trading using opposite FedEx and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FedEx 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 FedEx 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.