Correlation Between Metalurgica Gerdau and Toyota

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

Diversification Opportunities for Metalurgica Gerdau and Toyota

0.29

Correlation Coefficient

Metalurgica Gerdau  Toyota

Modest diversification

The 3 months correlation between Metalurgica and Toyota is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Toyota go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Toyota

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 8.59 times less return on investment than Toyota. But when comparing it to its historical volatility, Metalurgica Gerdau SA is 1.02 times less risky than Toyota. It trades about 0.01 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,452  in Toyota Motor on October 3, 2024 and sell it today you would earn a total of  3,124  from holding Toyota Motor or generate 70.17% return on investment over 90 days.

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

Metalurgica Gerdau SA  vs.  Toyota Motor

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.

Toyota Motor

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Toyota sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalurgica Gerdau and Toyota

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

The idea behind Metalurgica Gerdau SA and Toyota Motor 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.