Correlation Between Gilead Sciences and BridgeBio Pharma

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

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

Diversification Opportunities for Gilead Sciences and BridgeBio Pharma

-0.44

Correlation Coefficient

Gilead Sciences  BridgeBio Pharma

Very good diversification

The 3 months correlation between Gilead and BridgeBio is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and BridgeBio Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BridgeBio Pharma 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 BridgeBio Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BridgeBio Pharma has no effect on the direction of Gilead Sciences i.e., Gilead Sciences and BridgeBio Pharma go up and down completely randomly.

Pair Corralation between Gilead Sciences and BridgeBio Pharma

Given the investment horizon of 90 days Gilead Sciences is expected to generate 2.13 times less return on investment than BridgeBio Pharma. But when comparing it to its historical volatility, Gilead Sciences is 2.2 times less risky than BridgeBio Pharma. It trades about 0.09 of its potential returns per unit of risk. BridgeBio Pharma is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,548  in BridgeBio Pharma on September 2, 2024 and sell it today you would earn a total of  161.00  from holding BridgeBio Pharma or generate 6.32% return on investment over 90 days.

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

Gilead Sciences  vs.  BridgeBio Pharma

Gilead Sciences

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 14 (%) 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.

BridgeBio Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BridgeBio Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, BridgeBio Pharma is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Gilead Sciences and BridgeBio Pharma

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

The idea behind Gilead Sciences and BridgeBio Pharma 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.