Correlation Between Amarin PLC and Sanofi ADR

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

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

Diversification Opportunities for Amarin PLC and Sanofi ADR

0.16

Correlation Coefficient

Amarin PLC  Sanofi ADR

Average diversification

The 3 months correlation between Amarin and Sanofi is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Amarin PLC and Sanofi ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanofi ADR and Amarin PLC 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 Amarin PLC are associated (or correlated) with Sanofi ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanofi ADR has no effect on the direction of Amarin PLC i.e., Amarin PLC and Sanofi ADR go up and down completely randomly.

Pair Corralation between Amarin PLC and Sanofi ADR

Given the investment horizon of 90 days Amarin PLC is expected to under-perform the Sanofi ADR. In addition to that, Amarin PLC is 3.8 times more volatile than Sanofi ADR. It trades about -0.01 of its total potential returns per unit of risk. Sanofi ADR is currently generating about 0.29 per unit of volatility. If you would invest  4,750  in Sanofi ADR on December 19, 2024 and sell it today you would earn a total of  1,161  from holding Sanofi ADR or generate 24.44% return on investment over 90 days.

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

Amarin PLC  vs.  Sanofi ADR

Amarin PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amarin PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Amarin PLC is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Sanofi ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sanofi ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Sanofi ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amarin PLC and Sanofi ADR

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

The idea behind Amarin PLC and Sanofi 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.

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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.