Correlation Between ArcelorMittal and Gerdau SA

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

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

Diversification Opportunities for ArcelorMittal and Gerdau SA

0.33

Correlation Coefficient

ArcelorMittal  Gerdau SA

Weak diversification

The 3 months correlation between ArcelorMittal and Gerdau is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA ADR 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 ArcelorMittal 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 ArcelorMittal SA ADR 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 ArcelorMittal i.e., ArcelorMittal and Gerdau SA go up and down completely randomly.

Pair Corralation between ArcelorMittal and Gerdau SA

Allowing for the 90-day total investment horizon ArcelorMittal SA ADR is expected to generate 1.4 times more return on investment than Gerdau SA. However, ArcelorMittal is 1.4 times more volatile than Gerdau SA ADR. It trades about 0.13 of its potential returns per unit of risk. Gerdau SA ADR is currently generating about 0.02 per unit of risk. If you would invest  2,293  in ArcelorMittal SA ADR on December 30, 2024 and sell it today you would earn a total of  585.00  from holding ArcelorMittal SA ADR or generate 25.51% return on investment over 90 days.

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

ArcelorMittal SA ADR  vs.  Gerdau SA ADR

ArcelorMittal SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ArcelorMittal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 ArcelorMittal and Gerdau SA

The main advantage of trading using opposite ArcelorMittal and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA ADR 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.