Correlation Between AstraZeneca PLC and Roche Holding

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

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

Diversification Opportunities for AstraZeneca PLC and Roche Holding

0.56

Correlation Coefficient

AstraZeneca PLC  Roche Holding

Very weak diversification

The 3 months correlation between AstraZeneca and Roche is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding AstraZeneca PLC and Roche Holding AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding AG and AstraZeneca PLC 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 AstraZeneca PLC are associated (or correlated) with Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding AG has no effect on the direction of AstraZeneca PLC i.e., AstraZeneca PLC and Roche Holding go up and down completely randomly.

Pair Corralation between AstraZeneca PLC and Roche Holding

Assuming the 90 days horizon AstraZeneca PLC is expected to under-perform the Roche Holding. But the pink sheet apears to be less risky and, when comparing its historical volatility, AstraZeneca PLC is 1.38 times less risky than Roche Holding. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Roche Holding AG is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  33,649  in Roche Holding AG on September 16, 2024 and sell it today you would lose (5,073) from holding Roche Holding AG or give up 15.08% of portfolio value over 90 days.

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

AstraZeneca PLC  vs.  Roche Holding AG

AstraZeneca PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AstraZeneca PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with AstraZeneca PLC and Roche Holding

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

The idea behind AstraZeneca PLC and Roche Holding AG 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.