Correlation Between Gerdau SA and Applied Materials

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

By analyzing existing cross correlation between Gerdau SA and Applied Materials, you can compare the effects of market volatilities on Gerdau SA and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and Applied Materials.

Diversification Opportunities for Gerdau SA and Applied Materials

-0.31

Correlation Coefficient

Gerdau SA  Applied Materials

Very good diversification

The 3 months correlation between Gerdau and Applied is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Gerdau SA i.e., Gerdau SA and Applied Materials go up and down completely randomly.

Pair Corralation between Gerdau SA and Applied Materials

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, Gerdau SA is 1.42 times less risky than Applied Materials. The stock trades about -0.02 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  239,977  in Applied Materials on September 24, 2024 and sell it today you would earn a total of  89,323  from holding Applied Materials or generate 37.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.65%
Values	Daily Returns

Gerdau SA  vs.  Applied Materials

Gerdau SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Gerdau SA and Applied Materials

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

The idea behind Gerdau SA and Applied Materials 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.