Correlation Between Metalurgica Gerdau and NXP Semiconductors

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

Diversification Opportunities for Metalurgica Gerdau and NXP Semiconductors

0.19

Correlation Coefficient

Metalurgica Gerdau  NXP Semiconductors

Average diversification

The 3 months correlation between Metalurgica and NXP is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors 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 NXP Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXP Semiconductors has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and NXP Semiconductors

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 188.63 times less return on investment than NXP Semiconductors. But when comparing it to its historical volatility, Metalurgica Gerdau SA is 1.23 times less risky than NXP Semiconductors. It trades about 0.0 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  44,749  in NXP Semiconductors NV on October 23, 2024 and sell it today you would earn a total of  20,659  from holding NXP Semiconductors NV or generate 46.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	66.81%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  NXP Semiconductors NV

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.

NXP Semiconductors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NXP Semiconductors NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NXP Semiconductors 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 NXP Semiconductors

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

The idea behind Metalurgica Gerdau SA and NXP Semiconductors NV 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.