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
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Gerdau and CVS is 0.4. 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 under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Gerdau SA is 1.21 times less risky than CVS Health. The stock trades about -0.01 of its potential returns per unit of risk. The CVS Health is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 125,055 in CVS Health on September 2, 2024 and sell it today you would lose (3,655) from holding CVS Health or give up 2.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Gerdau SA vs. CVS Health
Performance |
| Timeline |
| Gerdau SA |
| CVS Health |
Gerdau SA and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
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.| CVS Health vs. DXC Technology | CVS Health vs. United Airlines Holdings | CVS Health vs. Genworth Financial | CVS Health vs. Deutsche Bank Aktiengesellschaft |
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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