Correlation Between Gerdau SA and Constellium

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

Diversification Opportunities for Gerdau SA and Constellium

0.12

Correlation Coefficient

Gerdau SA  Constellium

Average diversification

The 3 months correlation between Gerdau and Constellium is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Constellium Nv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellium Nv 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 Constellium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellium Nv has no effect on the direction of Gerdau SA i.e., Gerdau SA and Constellium go up and down completely randomly.

Pair Corralation between Gerdau SA and Constellium

Considering the 90-day investment horizon Gerdau SA ADR is expected to generate 0.55 times more return on investment than Constellium. However, Gerdau SA ADR is 1.81 times less risky than Constellium. It trades about 0.04 of its potential returns per unit of risk. Constellium Nv is currently generating about -0.08 per unit of risk. If you would invest  328.00  in Gerdau SA ADR on September 5, 2024 and sell it today you would earn a total of  16.00  from holding Gerdau SA ADR or generate 4.88% return on investment over 90 days.

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

Gerdau SA ADR  vs.  Constellium Nv

Gerdau SA ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Constellium Nv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellium Nv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Gerdau SA and Constellium

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

The idea behind Gerdau SA ADR and Constellium Nv 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.