Correlation Between Metalurgica Gerdau and Verizon Communications

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

Diversification Opportunities for Metalurgica Gerdau and Verizon Communications

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Metalurgica and Verizon is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Verizon Communications go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Verizon Communications

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 1.01 times less return on investment than Verizon Communications. In addition to that, Metalurgica Gerdau is 1.2 times more volatile than Verizon Communications. It trades about 0.1 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.12 per unit of volatility. If you would invest  3,809  in Verizon Communications on September 6, 2024 and sell it today you would earn a total of  455.00  from holding Verizon Communications or generate 11.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Metalurgica Gerdau SA  vs.  Verizon Communications

 Performance 
       Timeline  
Metalurgica Gerdau 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Verizon Communications 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Metalurgica Gerdau and Verizon Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Metalurgica Gerdau and Verizon Communications

The main advantage of trading using opposite Metalurgica Gerdau and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metalurgica Gerdau position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.
The idea behind Metalurgica Gerdau SA and Verizon Communications 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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