Correlation Between GSK Plc and Sanofi ADR

Can any of the company-specific risk be diversified away by investing in both GSK Plc and Sanofi ADR 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 GSK Plc and Sanofi ADR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GSK plc and Sanofi ADR, you can compare the effects of market volatilities on GSK Plc and Sanofi ADR 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 GSK Plc with a short position of Sanofi ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of GSK Plc and Sanofi ADR.

Diversification Opportunities for GSK Plc and Sanofi ADR

0.13

Correlation Coefficient

GSK Plc  Sanofi ADR

Average diversification

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

Pair Corralation between GSK Plc and Sanofi ADR

Assuming the 90 days horizon GSK Plc is expected to generate 1.8 times less return on investment than Sanofi ADR. In addition to that, GSK Plc is 1.16 times more volatile than Sanofi ADR. It trades about 0.04 of its total potential returns per unit of risk. Sanofi ADR is currently generating about 0.07 per unit of volatility. If you would invest  4,780  in Sanofi ADR on February 4, 2024 and sell it today you would earn a total of  121.00  from holding Sanofi ADR or generate 2.53% return on investment over 90 days.

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

GSK plc  vs.  Sanofi ADR

GSK plc

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GSK plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, GSK Plc may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Sanofi ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sanofi ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sanofi ADR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GSK Plc and Sanofi ADR

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

The idea behind GSK plc and Sanofi 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.