Correlation Between CVS Health and Metalurgica Gerdau

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

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

Diversification Opportunities for CVS Health and Metalurgica Gerdau

0.15

Correlation Coefficient

CVS Health  Metalurgica Gerdau

Average diversification

The 3 months correlation between CVS and Metalurgica is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau and CVS Health 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 CVS Health are associated (or correlated) with Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of CVS Health i.e., CVS Health and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between CVS Health and Metalurgica Gerdau

Assuming the 90 days trading horizon CVS Health is expected to generate 1.22 times less return on investment than Metalurgica Gerdau. In addition to that, CVS Health is 1.51 times more volatile than Metalurgica Gerdau SA. It trades about 0.05 of its total potential returns per unit of risk. Metalurgica Gerdau SA is currently generating about 0.1 per unit of volatility. If you would invest  1,031  in Metalurgica Gerdau SA on September 1, 2024 and sell it today you would earn a total of  115.00  from holding Metalurgica Gerdau SA or generate 11.15% return on investment over 90 days.

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

CVS Health  vs.  Metalurgica Gerdau SA

CVS Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Metalurgica Gerdau

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with CVS Health and Metalurgica Gerdau

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

The idea behind CVS Health and Metalurgica Gerdau SA 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.