Correlation Between High Yield and Gerdau SA

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

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

Diversification Opportunities for High Yield and Gerdau SA

0.46

Correlation Coefficient

High Yield  Gerdau SA

Very weak diversification

The 3 months correlation between High and Gerdau is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund 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 High Yield 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 High Yield Municipal Fund 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 High Yield i.e., High Yield and Gerdau SA go up and down completely randomly.

Pair Corralation between High Yield and Gerdau SA

Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 0.11 times more return on investment than Gerdau SA. However, High Yield Municipal Fund is 9.42 times less risky than Gerdau SA. It trades about 0.09 of its potential returns per unit of risk. Gerdau SA ADR is currently generating about -0.07 per unit of risk. If you would invest  895.00  in High Yield Municipal Fund on September 15, 2024 and sell it today you would earn a total of  3.00  from holding High Yield Municipal Fund or generate 0.34% return on investment over 90 days.

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

High Yield Municipal Fund  vs.  Gerdau SA ADR

High Yield Municipal

Risk-Adjusted Performance

0 of 100

Weak

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

The main advantage of trading using opposite High Yield and Gerdau SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield 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 High Yield Municipal Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.