Correlation Between Galapagos and Pharming Group

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

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

Diversification Opportunities for Galapagos and Pharming Group

0.81

Correlation Coefficient

Galapagos  Pharming Group

Very poor diversification

The 3 months correlation between Galapagos and Pharming is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Galapagos NV and Pharming Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharming Group NV and Galapagos 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 Galapagos NV are associated (or correlated) with Pharming Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharming Group NV has no effect on the direction of Galapagos i.e., Galapagos and Pharming Group go up and down completely randomly.

Pair Corralation between Galapagos and Pharming Group

Assuming the 90 days trading horizon Galapagos NV is expected to generate 0.44 times more return on investment than Pharming Group. However, Galapagos NV is 2.29 times less risky than Pharming Group. It trades about -0.31 of its potential returns per unit of risk. Pharming Group NV is currently generating about -0.14 per unit of risk. If you would invest  2,936  in Galapagos NV on February 8, 2024 and sell it today you would lose (212.00) from holding Galapagos NV or give up 7.22% of portfolio value over 90 days.

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

Galapagos NV  vs.  Pharming Group NV

Galapagos NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Galapagos NV 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 comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pharming Group NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pharming Group NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Galapagos and Pharming Group

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

The idea behind Galapagos NV and Pharming Group NV 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.