Correlation Between Gerdau SA and HDFC Bank

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

By analyzing existing cross correlation between Gerdau SA and HDFC Bank Limited, you can compare the effects of market volatilities on Gerdau SA and HDFC Bank 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 HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and HDFC Bank.

Diversification Opportunities for Gerdau SA and HDFC Bank

0.67

Correlation Coefficient

Gerdau SA  HDFC Bank

Poor diversification

The 3 months correlation between Gerdau and HDFC is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited 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 HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank Limited has no effect on the direction of Gerdau SA i.e., Gerdau SA and HDFC Bank go up and down completely randomly.

Pair Corralation between Gerdau SA and HDFC Bank

Assuming the 90 days trading horizon Gerdau SA is expected to under-perform the HDFC Bank. In addition to that, Gerdau SA is 1.36 times more volatile than HDFC Bank Limited. It trades about -0.28 of its total potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.0 per unit of volatility. If you would invest  7,944  in HDFC Bank Limited on September 29, 2024 and sell it today you would lose (8.00) from holding HDFC Bank Limited or give up 0.1% of portfolio value over 90 days.

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

Gerdau SA  vs.  HDFC Bank Limited

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gerdau SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and HDFC Bank

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

The idea behind Gerdau SA and HDFC Bank Limited 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.