Correlation Between IPC MEXICO and Gerdau SA

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

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

Diversification Opportunities for IPC MEXICO and Gerdau SA

-0.48

Correlation Coefficient

IPC MEXICO  Gerdau SA

Very good diversification

The 3 months correlation between IPC and Gerdau is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and IPC MEXICO 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 IPC MEXICO 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 has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Gerdau SA go up and down completely randomly.

Pair Corralation between IPC MEXICO and Gerdau SA

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Gerdau SA. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 2.81 times less risky than Gerdau SA. The index trades about -0.12 of its potential returns per unit of risk. The Gerdau SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  6,869  in Gerdau SA on September 24, 2024 and sell it today you would lose (68.00) from holding Gerdau SA or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.02%
Values	Daily Returns

IPC MEXICO  vs.  Gerdau SA

Pair Trading with IPC MEXICO and Gerdau SA

The main advantage of trading using opposite IPC MEXICO and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO and Gerdau SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.