Correlation Between Gerdau SA and Champion Iron

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

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

Diversification Opportunities for Gerdau SA and Champion Iron

-0.48

Correlation Coefficient

Gerdau SA  Champion Iron

Very good diversification

The 3 months correlation between Gerdau and Champion is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Champion Iron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron Limited 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 Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron Limited has no effect on the direction of Gerdau SA i.e., Gerdau SA and Champion Iron go up and down completely randomly.

Pair Corralation between Gerdau SA and Champion Iron

Assuming the 90 days trading horizon Gerdau SA is expected to generate 0.44 times more return on investment than Champion Iron. However, Gerdau SA is 2.27 times less risky than Champion Iron. It trades about 0.01 of its potential returns per unit of risk. Champion Iron Limited is currently generating about -0.02 per unit of risk. If you would invest  1,603  in Gerdau SA on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Gerdau SA or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Gerdau SA  vs.  Champion Iron Limited

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gerdau SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Champion Iron Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Champion Iron Limited 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 nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Gerdau SA and Champion Iron

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

The idea behind Gerdau SA and Champion Iron Limited 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.