Correlation Between Gerdau SA and Ta Chen

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

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

Diversification Opportunities for Gerdau SA and Ta Chen

0.06

Correlation Coefficient

Gerdau SA  Ta Chen

Significant diversification

The 3 months correlation between Gerdau and 2027 is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Ta Chen Stainless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ta Chen Stainless 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 Ta Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ta Chen Stainless has no effect on the direction of Gerdau SA i.e., Gerdau SA and Ta Chen go up and down completely randomly.

Pair Corralation between Gerdau SA and Ta Chen

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the Ta Chen. But the preferred stock apears to be less risky and, when comparing its historical volatility, Gerdau SA is 1.59 times less risky than Ta Chen. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Ta Chen Stainless is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  3,030  in Ta Chen Stainless on December 30, 2024 and sell it today you would earn a total of  2,060  from holding Ta Chen Stainless or generate 67.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

Gerdau SA  vs.  Ta Chen Stainless

Gerdau SA

Risk-Adjusted Performance

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.

Ta Chen Stainless

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Ta Chen Stainless are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Ta Chen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and Ta Chen

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

The idea behind Gerdau SA and Ta Chen Stainless 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.