Correlation Between Gilead Sciences and Ocular Therapeutix

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

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

Diversification Opportunities for Gilead Sciences and Ocular Therapeutix

0.64

Correlation Coefficient

Gilead Sciences  Ocular Therapeutix

Poor diversification

The 3 months correlation between Gilead and Ocular is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Ocular Therapeutix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocular Therapeutix 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 Ocular Therapeutix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocular Therapeutix has no effect on the direction of Gilead Sciences i.e., Gilead Sciences and Ocular Therapeutix go up and down completely randomly.

Pair Corralation between Gilead Sciences and Ocular Therapeutix

Given the investment horizon of 90 days Gilead Sciences is expected to generate 10.26 times less return on investment than Ocular Therapeutix. But when comparing it to its historical volatility, Gilead Sciences is 3.69 times less risky than Ocular Therapeutix. It trades about 0.03 of its potential returns per unit of risk. Ocular Therapeutix is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  294.00  in Ocular Therapeutix on September 4, 2024 and sell it today you would earn a total of  683.00  from holding Ocular Therapeutix or generate 232.31% return on investment over 90 days.

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

Gilead Sciences  vs.  Ocular Therapeutix

Gilead Sciences

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Gilead Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ocular Therapeutix

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ocular Therapeutix are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Ocular Therapeutix disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gilead Sciences and Ocular Therapeutix

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

The idea behind Gilead Sciences and Ocular Therapeutix 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.