Correlation Between Stelco Holdings and Gerdau SA

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

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

Diversification Opportunities for Stelco Holdings and Gerdau SA

-0.05

Correlation Coefficient

Stelco Holdings  Gerdau SA

Good diversification

The 3 months correlation between Stelco and Gerdau is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Stelco Holdings 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 Stelco Holdings 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 Stelco Holdings 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 Stelco Holdings i.e., Stelco Holdings and Gerdau SA go up and down completely randomly.

Pair Corralation between Stelco Holdings and Gerdau SA

Assuming the 90 days horizon Stelco Holdings is expected to generate 2.11 times more return on investment than Gerdau SA. However, Stelco Holdings is 2.11 times more volatile than Gerdau SA ADR. It trades about 0.04 of its potential returns per unit of risk. Gerdau SA ADR is currently generating about -0.02 per unit of risk. If you would invest  2,977  in Stelco Holdings on September 30, 2024 and sell it today you would earn a total of  1,964  from holding Stelco Holdings or generate 65.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.74%
Values	Daily Returns

Stelco Holdings  vs.  Gerdau SA ADR

Stelco Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Stelco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Stelco Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Stelco Holdings and Gerdau SA

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

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.