Correlation Between Gerdau SA and Algoma Steel

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

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

Diversification Opportunities for Gerdau SA and Algoma Steel

0.56

Correlation Coefficient

Gerdau SA  Algoma Steel

Very weak diversification

The 3 months correlation between Gerdau and Algoma is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group and Gerdau SA 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 Gerdau SA ADR are associated (or correlated) with Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of Gerdau SA i.e., Gerdau SA and Algoma Steel go up and down completely randomly.

Pair Corralation between Gerdau SA and Algoma Steel

Considering the 90-day investment horizon Gerdau SA ADR is expected to under-perform the Algoma Steel. But the stock apears to be less risky and, when comparing its historical volatility, Gerdau SA ADR is 1.12 times less risky than Algoma Steel. The stock trades about -0.02 of its potential returns per unit of risk. The Algoma Steel Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  774.00  in Algoma Steel Group on October 5, 2024 and sell it today you would earn a total of  196.00  from holding Algoma Steel Group or generate 25.32% return on investment over 90 days.

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

Gerdau SA ADR  vs.  Algoma Steel Group

Gerdau SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Algoma Steel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algoma Steel Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Gerdau SA and Algoma Steel

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

The idea behind Gerdau SA ADR and Algoma Steel Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.