Correlation Between Gerdau SA and Commercial Metals

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

Diversification Opportunities for Gerdau SA and Commercial Metals

0.2

Correlation Coefficient

Gerdau SA  Commercial Metals

Modest diversification

The 3 months correlation between Gerdau and Commercial is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals 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 Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of Gerdau SA i.e., Gerdau SA and Commercial Metals go up and down completely randomly.

Pair Corralation between Gerdau SA and Commercial Metals

Considering the 90-day investment horizon Gerdau SA ADR is expected to generate 0.98 times more return on investment than Commercial Metals. However, Gerdau SA ADR is 1.02 times less risky than Commercial Metals. It trades about 0.02 of its potential returns per unit of risk. Commercial Metals is currently generating about -0.03 per unit of risk. If you would invest  288.00  in Gerdau SA ADR on December 29, 2024 and sell it today you would earn a total of  4.00  from holding Gerdau SA ADR or generate 1.39% return on investment over 90 days.

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

Gerdau SA ADR  vs.  Commercial Metals

Gerdau SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gerdau SA and Commercial Metals

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

The idea behind Gerdau SA ADR and Commercial Metals 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.