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 AG, 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

0.2

Correlation Coefficient

Grifols SA  Roche Holding

Modest diversification

The 3 months correlation between Grifols and Roche is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Grifols SA ADR and Roche Holding AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding AG 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 AG 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

Given the investment horizon of 90 days Grifols SA ADR is expected to under-perform the Roche Holding. But the stock apears to be less risky and, when comparing its historical volatility, Grifols SA ADR is 1.16 times less risky than Roche Holding. The stock trades about -0.02 of its potential returns per unit of risk. The Roche Holding AG is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  32,778  in Roche Holding AG on February 4, 2024 and sell it today you would lose (6,878) from holding Roche Holding AG or give up 20.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Grifols SA ADR  vs.  Roche Holding AG

Grifols SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Roche Holding AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Roche Holding is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 AG 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.