Correlation Between Gilead Sciences and Biogen

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

By analyzing existing cross correlation between Gilead Sciences and Biogen Inc, you can compare the effects of market volatilities on Gilead Sciences and Biogen 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 Gilead Sciences with a short position of Biogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gilead Sciences and Biogen.

Diversification Opportunities for Gilead Sciences and Biogen

0.9

Correlation Coefficient

Gilead Sciences  Biogen

Almost no diversification

The 3 months correlation between Gilead and Biogen is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc and Gilead Sciences 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 Gilead Sciences are associated (or correlated) with Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Gilead Sciences i.e., Gilead Sciences and Biogen go up and down completely randomly.

Pair Corralation between Gilead Sciences and Biogen

Given the investment horizon of 90 days Gilead Sciences is expected to under-perform the Biogen. But the stock apears to be less risky and, when comparing its historical volatility, Gilead Sciences is 1.84 times less risky than Biogen. The stock trades about -0.38 of its potential returns per unit of risk. The Biogen Inc is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  21,202  in Biogen Inc on January 26, 2024 and sell it today you would lose (1,003) from holding Biogen Inc or give up 4.73% of portfolio value over 90 days.

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

Gilead Sciences  vs.  Biogen Inc

Gilead Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gilead Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Biogen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Gilead Sciences and Biogen

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

The idea behind Gilead Sciences and Biogen Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.