Correlation Between Almirall and Faes Farma

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

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

Diversification Opportunities for Almirall and Faes Farma

0.06

Correlation Coefficient

Almirall  Faes Farma

Significant diversification

The 3 months correlation between Almirall and Faes is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Almirall SA and Faes Farma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faes Farma SA and Almirall 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 Almirall SA are associated (or correlated) with Faes Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faes Farma SA has no effect on the direction of Almirall i.e., Almirall and Faes Farma go up and down completely randomly.

Pair Corralation between Almirall and Faes Farma

Assuming the 90 days trading horizon Almirall SA is expected to generate 0.85 times more return on investment than Faes Farma. However, Almirall SA is 1.17 times less risky than Faes Farma. It trades about 0.22 of its potential returns per unit of risk. Faes Farma SA is currently generating about 0.14 per unit of risk. If you would invest  808.00  in Almirall SA on December 29, 2024 and sell it today you would earn a total of  199.00  from holding Almirall SA or generate 24.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Almirall SA  vs.  Faes Farma SA

Almirall SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Almirall SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Almirall exhibited solid returns over the last few months and may actually be approaching a breakup point.

Faes Farma SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Faes Farma SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Faes Farma exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Almirall and Faes Farma

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

The idea behind Almirall SA and Faes Farma SA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.