Correlation Between Laboratorios Farmaceuticos and Grifols SA

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

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

Diversification Opportunities for Laboratorios Farmaceuticos and Grifols SA

-0.39

Correlation Coefficient

Laboratorios Farmaceuticos  Grifols SA

Very good diversification

The 3 months correlation between Laboratorios and Grifols is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Laboratorios Farmaceuticos ROV and Grifols SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grifols SA and Laboratorios Farmaceuticos 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 Laboratorios Farmaceuticos ROVI are associated (or correlated) with Grifols SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grifols SA has no effect on the direction of Laboratorios Farmaceuticos i.e., Laboratorios Farmaceuticos and Grifols SA go up and down completely randomly.

Pair Corralation between Laboratorios Farmaceuticos and Grifols SA

Assuming the 90 days trading horizon Laboratorios Farmaceuticos ROVI is expected to under-perform the Grifols SA. But the stock apears to be less risky and, when comparing its historical volatility, Laboratorios Farmaceuticos ROVI is 1.15 times less risky than Grifols SA. The stock trades about -0.12 of its potential returns per unit of risk. The Grifols SA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,005  in Grifols SA on September 2, 2024 and sell it today you would lose (143.00) from holding Grifols SA or give up 14.23% of portfolio value over 90 days.

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

Laboratorios Farmaceuticos ROV  vs.  Grifols SA

Laboratorios Farmaceuticos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laboratorios Farmaceuticos ROVI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Grifols SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Laboratorios Farmaceuticos and Grifols SA

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

The idea behind Laboratorios Farmaceuticos ROVI and Grifols 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.