Correlation Between Gerdau SA and Merck

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

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

Diversification Opportunities for Gerdau SA and Merck

-0.32

Correlation Coefficient

Gerdau SA  Merck

Very good diversification

The 3 months correlation between Gerdau and Merck is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck has no effect on the direction of Gerdau SA i.e., Gerdau SA and Merck go up and down completely randomly.

Pair Corralation between Gerdau SA and Merck

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Gerdau SA is 1.91 times less risky than Merck. The stock trades about -0.27 of its potential returns per unit of risk. The Merck Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,343  in Merck Co on September 25, 2024 and sell it today you would earn a total of  385.00  from holding Merck Co or generate 5.24% return on investment over 90 days.

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

Gerdau SA  vs.  Merck Co

Gerdau SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 6 (%) 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.

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gerdau SA and Merck

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

The idea behind Gerdau SA and Merck Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.