Correlation Between Dow Jones and Gerdau SA
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Gerdau SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Gerdau SA, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Gerdau SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Gerdau SA.
Diversification Opportunities for Dow Jones and Gerdau SA
Poor diversification
The 3 months correlation between Dow and Gerdau is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Gerdau SA go up and down completely randomly.
Pair Corralation between Dow Jones and Gerdau SA
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.12 times less return on investment than Gerdau SA. But when comparing it to its historical volatility, Dow Jones Industrial is 2.65 times less risky than Gerdau SA. It trades about 0.29 of its potential returns per unit of risk. Gerdau SA is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,814 in Gerdau SA on August 31, 2024 and sell it today you would earn a total of 211.00 from holding Gerdau SA or generate 11.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Dow Jones Industrial vs. Gerdau SA
Performance |
| Timeline |
Dow Jones and Gerdau SA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Gerdau SA
Pair trading matchups for Gerdau SA
Pair Trading with Dow Jones and Gerdau SA
The main advantage of trading using opposite Dow Jones and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Gerdau SA vs. Companhia Siderrgica Nacional | Gerdau SA vs. Usinas Siderrgicas de | Gerdau SA vs. Companhia Energtica de | Gerdau SA vs. Cosan SA |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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