Correlation Between Metalurgica Gerdau and Royal Caribbean

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

Diversification Opportunities for Metalurgica Gerdau and Royal Caribbean

0.71

Correlation Coefficient

Metalurgica Gerdau  Royal Caribbean

Poor diversification

The 3 months correlation between Metalurgica and Royal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises 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 Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Royal Caribbean go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Royal Caribbean

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to under-perform the Royal Caribbean. But the preferred stock apears to be less risky and, when comparing its historical volatility, Metalurgica Gerdau SA is 1.05 times less risky than Royal Caribbean. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Royal Caribbean Cruises is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  49,092  in Royal Caribbean Cruises on October 7, 2024 and sell it today you would earn a total of  21,141  from holding Royal Caribbean Cruises or generate 43.06% 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.  Royal Caribbean Cruises

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.

Royal Caribbean Cruises

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Royal Caribbean sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalurgica Gerdau and Royal Caribbean

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

The idea behind Metalurgica Gerdau SA and Royal Caribbean Cruises 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.