Correlation Between Metalurgica Gerdau and Randon SA

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

Diversification Opportunities for Metalurgica Gerdau and Randon SA

0.82

Correlation Coefficient

Metalurgica Gerdau  Randon SA

Very poor diversification

The 3 months correlation between Metalurgica and Randon is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Randon SA Implementos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Randon SA Implementos 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 Randon SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Randon SA Implementos has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Randon SA go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Randon SA

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to under-perform the Randon SA. But the preferred stock apears to be less risky and, when comparing its historical volatility, Metalurgica Gerdau SA is 1.27 times less risky than Randon SA. The preferred stock trades about -0.09 of its potential returns per unit of risk. The Randon SA Implementos is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,015  in Randon SA Implementos on November 20, 2024 and sell it today you would lose (60.00) from holding Randon SA Implementos or give up 5.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  Randon SA Implementos

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.

Randon SA Implementos

Risk-Adjusted Performance

Very Weak

Over the last 90 days Randon SA Implementos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Randon SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Metalurgica Gerdau and Randon SA

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

The idea behind Metalurgica Gerdau SA and Randon SA Implementos 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.