Correlation Between Gerdau SA and MetLife

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

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

Diversification Opportunities for Gerdau SA and MetLife

0.76

Correlation Coefficient

Gerdau SA  MetLife

Poor diversification

The 3 months correlation between Gerdau and MetLife is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Gerdau SA i.e., Gerdau SA and MetLife go up and down completely randomly.

Pair Corralation between Gerdau SA and MetLife

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the MetLife. In addition to that, Gerdau SA is 1.3 times more volatile than MetLife. It trades about -0.29 of its total potential returns per unit of risk. MetLife is currently generating about -0.05 per unit of volatility. If you would invest  50,400  in MetLife on September 27, 2024 and sell it today you would lose (861.00) from holding MetLife or give up 1.71% of portfolio value over 90 days.

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

Gerdau SA  vs.  MetLife

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.

MetLife

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetLife sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and MetLife

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

The idea behind Gerdau SA and MetLife 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.