Correlation Between Prologis and Gerdau SA

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

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

Diversification Opportunities for Prologis and Gerdau SA

-0.13

Correlation Coefficient

Prologis  Gerdau SA

Good diversification

The 3 months correlation between Prologis and Gerdau is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Prologis and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Prologis 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 Prologis 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 Prologis i.e., Prologis and Gerdau SA go up and down completely randomly.

Pair Corralation between Prologis and Gerdau SA

Assuming the 90 days trading horizon Prologis is expected to generate 1.65 times more return on investment than Gerdau SA. However, Prologis is 1.65 times more volatile than Gerdau SA. It trades about -0.05 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.29 per unit of risk. If you would invest  5,602  in Prologis on September 27, 2024 and sell it today you would lose (222.00) from holding Prologis or give up 3.96% of portfolio value over 90 days.

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

Prologis  vs.  Gerdau SA

Prologis

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gerdau SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prologis and Gerdau SA

The main advantage of trading using opposite Prologis and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prologis 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 Prologis 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.