Correlation Between Gerdau SA and AMERICAN

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

Diversification Opportunities for Gerdau SA and AMERICAN

0.05

Correlation Coefficient

Gerdau SA  AMERICAN

Significant diversification

The 3 months correlation between Gerdau and AMERICAN is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and AMERICAN TOWER P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN TOWER P 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN TOWER P has no effect on the direction of Gerdau SA i.e., Gerdau SA and AMERICAN go up and down completely randomly.

Pair Corralation between Gerdau SA and AMERICAN

Considering the 90-day investment horizon Gerdau SA is expected to generate 1.57 times less return on investment than AMERICAN. In addition to that, Gerdau SA is 3.73 times more volatile than AMERICAN TOWER P. It trades about 0.01 of its total potential returns per unit of risk. AMERICAN TOWER P is currently generating about 0.03 per unit of volatility. If you would invest  9,601  in AMERICAN TOWER P on December 23, 2024 and sell it today you would earn a total of  115.00  from holding AMERICAN TOWER P or generate 1.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Gerdau SA ADR  vs.  AMERICAN TOWER P

Gerdau SA ADR

Risk-Adjusted Performance

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 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.

AMERICAN TOWER P

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN TOWER P are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gerdau SA and AMERICAN

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

The idea behind Gerdau SA ADR and AMERICAN TOWER P 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 Global Correlations module to find global opportunities by holding instruments from different markets.