Correlation Between Metalurgica Gerdau and Home Depot

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

Diversification Opportunities for Metalurgica Gerdau and Home Depot

0.7

Correlation Coefficient

Metalurgica Gerdau  Home Depot

Poor diversification

The 3 months correlation between Metalurgica and Home is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Home Depot go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Home Depot

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 3.66 times less return on investment than Home Depot. In addition to that, Metalurgica Gerdau is 1.03 times more volatile than The Home Depot. It trades about 0.03 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.11 per unit of volatility. If you would invest  5,409  in The Home Depot on September 23, 2024 and sell it today you would earn a total of  3,075  from holding The Home Depot or generate 56.85% 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.  The Home Depot

Metalurgica Gerdau

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 5 (%) 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.

Home Depot

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metalurgica Gerdau and Home Depot

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

The idea behind Metalurgica Gerdau SA and The Home Depot 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.