Correlation Between United States and Gerdau SA

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

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

Diversification Opportunities for United States and Gerdau SA

0.15

Correlation Coefficient

United States  Gerdau SA

Average diversification

The 3 months correlation between United and Gerdau is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and United States 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 United States Steel 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 United States i.e., United States and Gerdau SA go up and down completely randomly.

Pair Corralation between United States and Gerdau SA

Given the investment horizon of 90 days United States Steel is expected to under-perform the Gerdau SA. In addition to that, United States is 3.45 times more volatile than Gerdau SA. It trades about -0.39 of its total potential returns per unit of risk. Gerdau SA is currently generating about -0.13 per unit of volatility. If you would invest  7,000  in Gerdau SA on September 26, 2024 and sell it today you would lose (199.00) from holding Gerdau SA or give up 2.84% of portfolio value over 90 days.

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

United States Steel  vs.  Gerdau SA

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with United States and Gerdau SA

The main advantage of trading using opposite United States and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Transaction History module to view history of all your transactions and understand their impact on performance.