Correlation Between Roche Holding and Sanofi ADR

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

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

Diversification Opportunities for Roche Holding and Sanofi ADR

0.88

Correlation Coefficient

Roche Holding  Sanofi ADR

Very poor diversification

The 3 months correlation between Roche and Sanofi is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG and Sanofi ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanofi ADR and Roche Holding 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 Roche Holding AG 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 Roche Holding i.e., Roche Holding and Sanofi ADR go up and down completely randomly.

Pair Corralation between Roche Holding and Sanofi ADR

Assuming the 90 days horizon Roche Holding AG is expected to generate 1.12 times more return on investment than Sanofi ADR. However, Roche Holding is 1.12 times more volatile than Sanofi ADR. It trades about -0.09 of its potential returns per unit of risk. Sanofi ADR is currently generating about -0.27 per unit of risk. If you would invest  31,283  in Roche Holding AG on September 15, 2024 and sell it today you would lose (2,394) from holding Roche Holding AG or give up 7.65% of portfolio value over 90 days.

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

Roche Holding AG  vs.  Sanofi ADR

Roche Holding AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Sanofi ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanofi ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Roche Holding and Sanofi ADR

The main advantage of trading using opposite Roche Holding and Sanofi ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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 Roche Holding AG 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.