Correlation Between Metalurgica Gerdau and International Business

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

Diversification Opportunities for Metalurgica Gerdau and International Business

-0.47

Correlation Coefficient

Metalurgica Gerdau  International Business

Very good diversification

The 3 months correlation between Metalurgica and International is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and International Business go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and International Business

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to under-perform the International Business. But the preferred stock apears to be less risky and, when comparing its historical volatility, Metalurgica Gerdau SA is 1.23 times less risky than International Business. The preferred stock trades about -0.07 of its potential returns per unit of risk. The International Business Machines is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  136,068  in International Business Machines on December 29, 2024 and sell it today you would earn a total of  4,509  from holding International Business Machines or generate 3.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  International Business Machine

Metalurgica Gerdau

Risk-Adjusted Performance

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 latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

International Business

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, International Business 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 International Business

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

The idea behind Metalurgica Gerdau SA and International Business Machines 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.