Correlation Between Metalurgica Gerdau and Bank of America

Can any of the company-specific risk be diversified away by investing in both Metalurgica Gerdau and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Metalurgica Gerdau and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metalurgica Gerdau and Bank of America.

Diversification Opportunities for Metalurgica Gerdau and Bank of America

0.64

Correlation Coefficient

Metalurgica Gerdau  Bank of America

Poor diversification

The 3 months correlation between Metalurgica and Bank is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Bank of America go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Bank of America

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 2.07 times less return on investment than Bank of America. In addition to that, Metalurgica Gerdau is 1.12 times more volatile than Bank of America. It trades about 0.11 of its total potential returns per unit of risk. Bank of America is currently generating about 0.26 per unit of volatility. If you would invest  5,404  in Bank of America on September 12, 2024 and sell it today you would earn a total of  1,664  from holding Bank of America or generate 30.79% return on investment over 90 days.

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

Metalurgica Gerdau SA  vs.  Bank of America

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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bank of America

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of America sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalurgica Gerdau and Bank of America

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

The idea behind Metalurgica Gerdau SA and Bank of America 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.