Correlation Between Metalurgica Gerdau and Johnson Johnson

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

Diversification Opportunities for Metalurgica Gerdau and Johnson Johnson

-0.16

Correlation Coefficient

Metalurgica Gerdau  Johnson Johnson

Good diversification

The 3 months correlation between Metalurgica and Johnson is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson 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 Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Johnson Johnson go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Johnson Johnson

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to under-perform the Johnson Johnson. In addition to that, Metalurgica Gerdau is 1.11 times more volatile than Johnson Johnson. It trades about -0.49 of its total potential returns per unit of risk. Johnson Johnson is currently generating about -0.06 per unit of volatility. If you would invest  6,062  in Johnson Johnson on October 10, 2024 and sell it today you would lose (114.00) from holding Johnson Johnson or give up 1.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  Johnson Johnson

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 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.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking indicators, Johnson Johnson 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 Johnson Johnson

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

The idea behind Metalurgica Gerdau SA and Johnson Johnson 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.