Correlation Between First Majestic and Gerdau SA

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

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

Diversification Opportunities for First Majestic and Gerdau SA

-0.45

Correlation Coefficient

First Majestic  Gerdau SA

Very good diversification

The 3 months correlation between First and Gerdau is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and First Majestic 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 First Majestic Silver 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 First Majestic i.e., First Majestic and Gerdau SA go up and down completely randomly.

Pair Corralation between First Majestic and Gerdau SA

Assuming the 90 days horizon First Majestic Silver is expected to under-perform the Gerdau SA. But the stock apears to be less risky and, when comparing its historical volatility, First Majestic Silver is 1.25 times less risky than Gerdau SA. The stock trades about -0.15 of its potential returns per unit of risk. The Gerdau SA is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,900  in Gerdau SA on September 23, 2024 and sell it today you would lose (99.00) from holding Gerdau SA or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

First Majestic Silver  vs.  Gerdau SA

First Majestic Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Majestic Silver has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, First Majestic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gerdau SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Majestic and Gerdau SA

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

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.