Correlation Between Gerdau SA and A1ME34
Can any of the company-specific risk be diversified away by investing in both Gerdau SA and A1ME34 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 A1ME34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gerdau SA and A1ME34, you can compare the effects of market volatilities on Gerdau SA and A1ME34 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 A1ME34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and A1ME34.
Diversification Opportunities for Gerdau SA and A1ME34
Almost no diversification
The 3 months correlation between Gerdau and A1ME34 is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and A1ME34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1ME34 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 A1ME34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1ME34 has no effect on the direction of Gerdau SA i.e., Gerdau SA and A1ME34 go up and down completely randomly.
Pair Corralation between Gerdau SA and A1ME34
Assuming the 90 days trading horizon Gerdau SA is expected to generate 1.85 times less return on investment than A1ME34. But when comparing it to its historical volatility, Gerdau SA is 1.12 times less risky than A1ME34. It trades about 0.05 of its potential returns per unit of risk. A1ME34 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,848 in A1ME34 on September 25, 2024 and sell it today you would earn a total of 867.00 from holding A1ME34 or generate 22.53% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 99.21% |
Values | Daily Returns |
Gerdau SA vs. A1ME34
Performance |
Timeline |
Gerdau SA |
A1ME34 |
Gerdau SA and A1ME34 Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Gerdau SA and A1ME34
The main advantage of trading using opposite Gerdau SA and A1ME34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gerdau SA position performs unexpectedly, A1ME34 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 A1ME34 will offset losses from the drop in A1ME34's long position.The idea behind Gerdau SA and A1ME34 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.Check out your portfolio center.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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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