Correlation Between Nucor Corp and Gerdau SA

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

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

Diversification Opportunities for Nucor Corp and Gerdau SA

0.48

Correlation Coefficient

Nucor Corp  Gerdau SA

Very weak diversification

The 3 months correlation between Nucor and Gerdau is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Nucor Corp 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 Nucor Corp 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 Nucor Corp 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 Nucor Corp i.e., Nucor Corp and Gerdau SA go up and down completely randomly.

Pair Corralation between Nucor Corp and Gerdau SA

Considering the 90-day investment horizon Nucor Corp is expected to generate 0.92 times more return on investment than Gerdau SA. However, Nucor Corp is 1.09 times less risky than Gerdau SA. 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  12,239  in Nucor Corp on January 31, 2024 and sell it today you would earn a total of  5,285  from holding Nucor Corp or generate 43.18% return on investment over 90 days.

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

Nucor Corp  vs.  Gerdau SA ADR

Nucor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nucor Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Gerdau SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental 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 Nucor Corp and Gerdau SA

The main advantage of trading using opposite Nucor Corp and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nucor Corp 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 Nucor Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.