Correlation Between Gerdau SA and Microsoft

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

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

Diversification Opportunities for Gerdau SA and Microsoft

0.65

Correlation Coefficient

Gerdau SA  Microsoft

Poor diversification

The 3 months correlation between Gerdau and Microsoft is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Gerdau SA i.e., Gerdau SA and Microsoft go up and down completely randomly.

Pair Corralation between Gerdau SA and Microsoft

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the Microsoft. In addition to that, Gerdau SA is 1.26 times more volatile than Microsoft. It trades about -0.29 of its total potential returns per unit of risk. Microsoft is currently generating about 0.26 per unit of volatility. If you would invest  10,370  in Microsoft on September 27, 2024 and sell it today you would earn a total of  801.00  from holding Microsoft or generate 7.72% return on investment over 90 days.

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

Gerdau SA  vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and Microsoft

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

The idea behind Gerdau SA and Microsoft 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.