Correlation Between Grifols SA and Roche Holding

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

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

Diversification Opportunities for Grifols SA and Roche Holding

-0.17

Correlation Coefficient

Grifols SA  Roche Holding

Good diversification

The 3 months correlation between Grifols and Roche is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Grifols SA ADR and Roche Holding Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding and Grifols 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 Grifols SA ADR are associated (or correlated) with Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding has no effect on the direction of Grifols SA i.e., Grifols SA and Roche Holding go up and down completely randomly.

Pair Corralation between Grifols SA and Roche Holding

Assuming the 90 days horizon Grifols SA ADR is expected to generate 3.91 times more return on investment than Roche Holding. However, Grifols SA is 3.91 times more volatile than Roche Holding Ltd. It trades about 0.05 of its potential returns per unit of risk. Roche Holding Ltd is currently generating about 0.06 per unit of risk. If you would invest  549.00  in Grifols SA ADR on July 14, 2024 and sell it today you would earn a total of  16.00  from holding Grifols SA ADR or generate 2.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Grifols SA ADR  vs.  Roche Holding Ltd

Grifols SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Grifols SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Grifols SA showed solid returns over the last few months and may actually be approaching a breakup point.

Roche Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Roche Holding Ltd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Roche Holding may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Grifols SA and Roche Holding

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

The idea behind Grifols SA ADR and Roche Holding Ltd 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.