Correlation Between Metalurgica Gerdau and Cognizant Technology

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

Diversification Opportunities for Metalurgica Gerdau and Cognizant Technology

0.12

Correlation Coefficient

Metalurgica Gerdau  Cognizant Technology

Average diversification

The 3 months correlation between Metalurgica and Cognizant is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology 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 Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Cognizant Technology go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Cognizant Technology

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to under-perform the Cognizant Technology. In addition to that, Metalurgica Gerdau is 1.5 times more volatile than Cognizant Technology Solutions. It trades about -0.01 of its total potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.07 per unit of volatility. If you would invest  33,275  in Cognizant Technology Solutions on October 11, 2024 and sell it today you would earn a total of  10,058  from holding Cognizant Technology Solutions or generate 30.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	65.12%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  Cognizant Technology Solutions

Metalurgica Gerdau

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalurgica Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Metalurgica Gerdau is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cognizant Technology

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Metalurgica Gerdau and Cognizant Technology

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

The idea behind Metalurgica Gerdau SA and Cognizant Technology Solutions 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.