Correlation Between Moderna and Galapagos

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

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

Diversification Opportunities for Moderna and Galapagos

-0.69

Correlation Coefficient

Moderna  Galapagos

Excellent diversification

The 3 months correlation between Moderna and Galapagos is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Moderna and Galapagos NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galapagos NV ADR and Moderna 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 Moderna are associated (or correlated) with Galapagos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galapagos NV ADR has no effect on the direction of Moderna i.e., Moderna and Galapagos go up and down completely randomly.

Pair Corralation between Moderna and Galapagos

Given the investment horizon of 90 days Moderna is expected to generate 2.46 times more return on investment than Galapagos. However, Moderna is 2.46 times more volatile than Galapagos NV ADR. It trades about 0.11 of its potential returns per unit of risk. Galapagos NV ADR is currently generating about -0.59 per unit of risk. If you would invest  10,560  in Moderna on January 30, 2024 and sell it today you would earn a total of  575.00  from holding Moderna or generate 5.45% return on investment over 90 days.

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

Moderna  vs.  Galapagos NV ADR

Moderna

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Moderna are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Moderna may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Galapagos NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Galapagos NV ADR 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 basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Moderna and Galapagos

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

The idea behind Moderna and Galapagos NV 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.