Correlation Between Quanex Building and Gerdau SA

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

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

Diversification Opportunities for Quanex Building and Gerdau SA

0.8

Correlation Coefficient

Quanex Building  Gerdau SA

Very poor diversification

The 3 months correlation between Quanex and Gerdau is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building 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 Quanex Building 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 Quanex Building 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 Quanex Building i.e., Quanex Building and Gerdau SA go up and down completely randomly.

Pair Corralation between Quanex Building and Gerdau SA

Allowing for the 90-day total investment horizon Quanex Building Products is expected to generate 1.24 times more return on investment than Gerdau SA. However, Quanex Building is 1.24 times more volatile than Gerdau SA ADR. It trades about 0.09 of its potential returns per unit of risk. Gerdau SA ADR is currently generating about -0.21 per unit of risk. If you would invest  2,313  in Quanex Building Products on October 20, 2024 and sell it today you would earn a total of  105.00  from holding Quanex Building Products or generate 4.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Quanex Building Products  vs.  Gerdau SA ADR

Quanex Building Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quanex Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly 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.

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 latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Quanex Building and Gerdau SA

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

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.