Correlation Between Ternium SA and Companhia Siderurgica

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

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

Diversification Opportunities for Ternium SA and Companhia Siderurgica

0.72

Correlation Coefficient

Ternium SA  Companhia Siderurgica

Poor diversification

The 3 months correlation between Ternium and Companhia is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and Companhia Siderurgica Nacional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Siderurgica and Ternium SA 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 Ternium SA ADR are associated (or correlated) with Companhia Siderurgica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Siderurgica has no effect on the direction of Ternium SA i.e., Ternium SA and Companhia Siderurgica go up and down completely randomly.

Pair Corralation between Ternium SA and Companhia Siderurgica

Allowing for the 90-day total investment horizon Ternium SA is expected to generate 2.18 times less return on investment than Companhia Siderurgica. But when comparing it to its historical volatility, Ternium SA ADR is 1.99 times less risky than Companhia Siderurgica. It trades about 0.1 of its potential returns per unit of risk. Companhia Siderurgica Nacional is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  145.00  in Companhia Siderurgica Nacional on December 28, 2024 and sell it today you would earn a total of  32.00  from holding Companhia Siderurgica Nacional or generate 22.07% return on investment over 90 days.

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

Ternium SA ADR  vs.  Companhia Siderurgica Nacional

Ternium SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ternium SA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ternium SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Companhia Siderurgica

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Siderurgica Nacional are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Companhia Siderurgica exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ternium SA and Companhia Siderurgica

The main advantage of trading using opposite Ternium SA and Companhia Siderurgica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ternium SA position performs unexpectedly, Companhia Siderurgica 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 Companhia Siderurgica will offset losses from the drop in Companhia Siderurgica's long position.

The idea behind Ternium SA ADR and Companhia Siderurgica Nacional 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 Transaction History module to view history of all your transactions and understand their impact on performance.