Correlation Between American Environmental and Gerdau SA

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

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

Diversification Opportunities for American Environmental and Gerdau SA

0.0

Correlation Coefficient

American Environmental  Gerdau SA

Pay attention - limited upside

The 3 months correlation between American and Gerdau is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding American Environmental 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 American Environmental 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 American Environmental 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 American Environmental i.e., American Environmental and Gerdau SA go up and down completely randomly.

Pair Corralation between American Environmental and Gerdau SA

If you would invest  0.01  in American Environmental on October 4, 2024 and sell it today you would earn a total of  0.00  from holding American Environmental or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American Environmental  vs.  Gerdau SA ADR

American Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Environmental is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Gerdau SA ADR

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Environmental and Gerdau SA

The main advantage of trading using opposite American Environmental and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Environmental 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 American Environmental 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.