Correlation Between Gerdau SA and Insteel Industries

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

Diversification Opportunities for Gerdau SA and Insteel Industries

0.87

Correlation Coefficient

Gerdau SA  Insteel Industries

Very poor diversification

The 3 months correlation between Gerdau and Insteel is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Gerdau SA i.e., Gerdau SA and Insteel Industries go up and down completely randomly.

Pair Corralation between Gerdau SA and Insteel Industries

Considering the 90-day investment horizon Gerdau SA ADR is expected to under-perform the Insteel Industries. In addition to that, Gerdau SA is 1.36 times more volatile than Insteel Industries. It trades about -0.36 of its total potential returns per unit of risk. Insteel Industries is currently generating about -0.35 per unit of volatility. If you would invest  2,976  in Insteel Industries on October 4, 2024 and sell it today you would lose (353.00) from holding Insteel Industries or give up 11.86% of portfolio value over 90 days.

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

Gerdau SA ADR  vs.  Insteel Industries

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.

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gerdau SA and Insteel Industries

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

The idea behind Gerdau SA ADR and Insteel Industries 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..