Correlation Between Gerdau SA and CVS Health

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

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

Diversification Opportunities for Gerdau SA and CVS Health

-0.13

Correlation Coefficient

Gerdau SA  CVS Health

Good diversification

The 3 months correlation between Gerdau and CVS is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Gerdau SA 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 Gerdau SA are associated (or correlated) with CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Gerdau SA i.e., Gerdau SA and CVS Health go up and down completely randomly.

Pair Corralation between Gerdau SA and CVS Health

Assuming the 90 days trading horizon Gerdau SA is expected to generate 0.49 times more return on investment than CVS Health. However, Gerdau SA is 2.04 times less risky than CVS Health. It trades about -0.22 of its potential returns per unit of risk. CVS Health is currently generating about -0.23 per unit of risk. If you would invest  1,950  in Gerdau SA on September 23, 2024 and sell it today you would lose (162.00) from holding Gerdau SA or give up 8.31% of portfolio value over 90 days.

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

Gerdau SA  vs.  CVS Health

Gerdau SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gerdau SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic 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 Gerdau SA and CVS Health

The main advantage of trading using opposite Gerdau SA and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gerdau SA position performs unexpectedly, CVS Health 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 CVS Health will offset losses from the drop in CVS Health's long position.

The idea behind Gerdau SA and CVS Health 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.