Correlation Between Sony and Gerdau SA

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

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

Diversification Opportunities for Sony and Gerdau SA

0.72

Correlation Coefficient

Sony  Gerdau SA

Poor diversification

The 3 months correlation between Sony and Gerdau is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Sony 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 Sony Group 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 Sony i.e., Sony and Gerdau SA go up and down completely randomly.

Pair Corralation between Sony and Gerdau SA

Assuming the 90 days trading horizon Sony Group is expected to generate 1.09 times more return on investment than Gerdau SA. However, Sony is 1.09 times more volatile than Gerdau SA. It trades about 0.1 of its potential returns per unit of risk. Gerdau SA is currently generating about 0.1 per unit of risk. If you would invest  10,657  in Sony Group on September 2, 2024 and sell it today you would earn a total of  1,409  from holding Sony Group or generate 13.22% return on investment over 90 days.

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

Sony Group  vs.  Gerdau SA

Sony Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sony sustained solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gerdau SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony and Gerdau SA

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

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.