Correlation Between Gerdau SA and Fertilizantes Heringer

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

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

Diversification Opportunities for Gerdau SA and Fertilizantes Heringer

0.44

Correlation Coefficient

Gerdau SA  Fertilizantes Heringer

Very weak diversification

The 3 months correlation between Gerdau and Fertilizantes is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Fertilizantes Heringer SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizantes Heringer 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 Fertilizantes Heringer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizantes Heringer has no effect on the direction of Gerdau SA i.e., Gerdau SA and Fertilizantes Heringer go up and down completely randomly.

Pair Corralation between Gerdau SA and Fertilizantes Heringer

Assuming the 90 days trading horizon Gerdau SA is expected to generate 7.99 times less return on investment than Fertilizantes Heringer. But when comparing it to its historical volatility, Gerdau SA is 5.26 times less risky than Fertilizantes Heringer. It trades about 0.05 of its potential returns per unit of risk. Fertilizantes Heringer SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  381.00  in Fertilizantes Heringer SA on September 27, 2024 and sell it today you would earn a total of  280.00  from holding Fertilizantes Heringer SA or generate 73.49% return on investment over 90 days.

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

Gerdau SA  vs.  Fertilizantes Heringer SA

Gerdau SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fertilizantes Heringer

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizantes Heringer SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Fertilizantes Heringer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and Fertilizantes Heringer

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

The idea behind Gerdau SA and Fertilizantes Heringer SA 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.