Correlation Between AbbVie and Gilead Sciences

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

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

Diversification Opportunities for AbbVie and Gilead Sciences

0.26

Correlation Coefficient

AbbVie  Gilead Sciences

Modest diversification

The 3 months correlation between AbbVie and Gilead is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences and AbbVie 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 AbbVie Inc are associated (or correlated) with Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of AbbVie i.e., AbbVie and Gilead Sciences go up and down completely randomly.

Pair Corralation between AbbVie and Gilead Sciences

Given the investment horizon of 90 days AbbVie Inc is expected to under-perform the Gilead Sciences. In addition to that, AbbVie is 1.69 times more volatile than Gilead Sciences. It trades about -0.27 of its total potential returns per unit of risk. Gilead Sciences is currently generating about -0.43 per unit of volatility. If you would invest  7,288  in Gilead Sciences on January 31, 2024 and sell it today you would lose (694.00) from holding Gilead Sciences or give up 9.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

AbbVie Inc  vs.  Gilead Sciences

AbbVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbbVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, AbbVie is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Gilead Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gilead Sciences 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 essential indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with AbbVie and Gilead Sciences

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

The idea behind AbbVie Inc and Gilead Sciences 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.