Correlation Between Metalurgica Gerdau and Automatic Data

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

By analyzing existing cross correlation between Metalurgica Gerdau SA and Automatic Data Processing, you can compare the effects of market volatilities on Metalurgica Gerdau and Automatic Data 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 Metalurgica Gerdau with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metalurgica Gerdau and Automatic Data.

Diversification Opportunities for Metalurgica Gerdau and Automatic Data

0.56

Correlation Coefficient

Metalurgica Gerdau  Automatic Data

Very weak diversification

The 3 months correlation between Metalurgica and Automatic is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and Metalurgica Gerdau 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 Metalurgica Gerdau SA are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Automatic Data go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Automatic Data

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 1.1 times less return on investment than Automatic Data. In addition to that, Metalurgica Gerdau is 1.26 times more volatile than Automatic Data Processing. It trades about 0.11 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.15 per unit of volatility. If you would invest  6,650  in Automatic Data Processing on September 12, 2024 and sell it today you would earn a total of  920.00  from holding Automatic Data Processing or generate 13.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  Automatic Data Processing

Metalurgica Gerdau

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Automatic Data Processing

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalurgica Gerdau and Automatic Data

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

The idea behind Metalurgica Gerdau SA and Automatic Data Processing 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.