Correlation Between Gilead Sciences and Bluebird Bio

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

By analyzing existing cross correlation between Gilead Sciences and Bluebird bio, you can compare the effects of market volatilities on Gilead Sciences and Bluebird Bio 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 Bluebird Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gilead Sciences and Bluebird Bio.

Diversification Opportunities for Gilead Sciences and Bluebird Bio

-0.44

Correlation Coefficient

Gilead Sciences  Bluebird Bio

Very good diversification

The 3 months correlation between Gilead and Bluebird is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Bluebird bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluebird bio 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 Bluebird Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bluebird bio has no effect on the direction of Gilead Sciences i.e., Gilead Sciences and Bluebird Bio go up and down completely randomly.

Pair Corralation between Gilead Sciences and Bluebird Bio

Given the investment horizon of 90 days Gilead Sciences is expected to generate 1.43 times less return on investment than Bluebird Bio. But when comparing it to its historical volatility, Gilead Sciences is 10.77 times less risky than Bluebird Bio. It trades about 0.13 of its potential returns per unit of risk. Bluebird bio is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  57.00  in Bluebird bio on September 12, 2024 and sell it today you would lose (18.00) from holding Bluebird bio or give up 31.58% of portfolio value over 90 days.

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

Gilead Sciences  vs.  Bluebird bio

Gilead Sciences

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent essential indicators, Gilead Sciences may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bluebird bio

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bluebird bio are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bluebird Bio exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gilead Sciences and Bluebird Bio

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

The idea behind Gilead Sciences and Bluebird bio 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.