Correlation Between Galapagos and UCB SA

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

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

Diversification Opportunities for Galapagos and UCB SA

0.05

Correlation Coefficient

Galapagos  UCB SA

Significant diversification

The 3 months correlation between Galapagos and UCB is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Galapagos NV and UCB SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UCB SA and Galapagos 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 Galapagos NV are associated (or correlated) with UCB SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UCB SA has no effect on the direction of Galapagos i.e., Galapagos and UCB SA go up and down completely randomly.

Pair Corralation between Galapagos and UCB SA

Assuming the 90 days trading horizon Galapagos NV is expected to generate 1.31 times more return on investment than UCB SA. However, Galapagos is 1.31 times more volatile than UCB SA. It trades about 0.27 of its potential returns per unit of risk. UCB SA is currently generating about -0.02 per unit of risk. If you would invest  2,272  in Galapagos NV on November 28, 2024 and sell it today you would earn a total of  248.00  from holding Galapagos NV or generate 10.92% return on investment over 90 days.

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

Galapagos NV  vs.  UCB SA

Galapagos NV

Risk-Adjusted Performance

Very Weak

Over the last 90 days Galapagos NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Galapagos is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

UCB SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UCB SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, UCB SA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Galapagos and UCB SA

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

The idea behind Galapagos NV and UCB 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.