Correlation Between Olympic Steel and Gerdau SA

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

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

Diversification Opportunities for Olympic Steel and Gerdau SA

0.17

Correlation Coefficient

Olympic Steel  Gerdau SA

Average diversification

The 3 months correlation between Olympic and Gerdau is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel 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 Olympic Steel 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 Olympic 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 ADR has no effect on the direction of Olympic Steel i.e., Olympic Steel and Gerdau SA go up and down completely randomly.

Pair Corralation between Olympic Steel and Gerdau SA

Given the investment horizon of 90 days Olympic Steel is expected to under-perform the Gerdau SA. In addition to that, Olympic Steel is 1.05 times more volatile than Gerdau SA ADR. It trades about -0.19 of its total potential returns per unit of risk. Gerdau SA ADR is currently generating about -0.07 per unit of volatility. If you would invest  352.00  in Gerdau SA ADR on March 12, 2024 and sell it today you would lose (36.00) from holding Gerdau SA ADR or give up 10.23% of portfolio value over 90 days.

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

Olympic Steel  vs.  Gerdau SA ADR

Olympic Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Olympic Steel and Gerdau SA

The main advantage of trading using opposite Olympic Steel and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Olympic Steel 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 Olympic Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.