Correlation Between Marine Products and Gerdau SA

Can any of the company-specific risk be diversified away by investing in both Marine Products and Gerdau 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 Marine Products and Gerdau SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Marine Products and Gerdau SA ADR, you can compare the effects of market volatilities on Marine Products and Gerdau 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 Marine Products with a short position of Gerdau SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marine Products and Gerdau SA.

Diversification Opportunities for Marine Products and Gerdau SA

0.7

Correlation Coefficient

Marine Products  Gerdau SA

Poor diversification

The 3 months correlation between Marine and Gerdau is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Marine Products and Gerdau SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA ADR and Marine Products 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 Marine Products are associated (or correlated) with Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA ADR has no effect on the direction of Marine Products i.e., Marine Products and Gerdau SA go up and down completely randomly.

Pair Corralation between Marine Products and Gerdau SA

Considering the 90-day investment horizon Marine Products is expected to under-perform the Gerdau SA. But the stock apears to be less risky and, when comparing its historical volatility, Marine Products is 1.08 times less risky than Gerdau SA. The stock trades about -0.05 of its potential returns per unit of risk. The Gerdau SA ADR is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  307.00  in Gerdau SA ADR on December 18, 2024 and sell it today you would lose (5.00) from holding Gerdau SA ADR or give up 1.63% of portfolio value over 90 days.

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

Marine Products  vs.  Gerdau SA ADR

Marine Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Marine Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Gerdau SA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gerdau SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Marine Products and Gerdau SA

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

The idea behind Marine Products and Gerdau SA ADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.