Correlation Between Gilead Sciences and Spero Therapeutics

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

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

Diversification Opportunities for Gilead Sciences and Spero Therapeutics

-0.48

Correlation Coefficient

Gilead Sciences  Spero Therapeutics

Very good diversification

The 3 months correlation between Gilead and Spero is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Spero Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spero Therapeutics 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 Spero Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spero Therapeutics has no effect on the direction of Gilead Sciences i.e., Gilead Sciences and Spero Therapeutics go up and down completely randomly.

Pair Corralation between Gilead Sciences and Spero Therapeutics

Given the investment horizon of 90 days Gilead Sciences is expected to generate 0.56 times more return on investment than Spero Therapeutics. However, Gilead Sciences is 1.78 times less risky than Spero Therapeutics. It trades about 0.18 of its potential returns per unit of risk. Spero Therapeutics is currently generating about -0.09 per unit of risk. If you would invest  7,896  in Gilead Sciences on August 31, 2024 and sell it today you would earn a total of  1,345  from holding Gilead Sciences or generate 17.03% 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.  Spero Therapeutics

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 unsteady essential indicators, Gilead Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Spero Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spero Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Gilead Sciences and Spero Therapeutics

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

The idea behind Gilead Sciences and Spero Therapeutics 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.