Correlation Between Grifols SA and Terns Pharmaceuticals

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

By analyzing existing cross correlation between Grifols SA ADR and Terns Pharmaceuticals, you can compare the effects of market volatilities on Grifols SA and Terns Pharmaceuticals 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 Grifols SA with a short position of Terns Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grifols SA and Terns Pharmaceuticals.

Diversification Opportunities for Grifols SA and Terns Pharmaceuticals

0.33

Correlation Coefficient

Grifols SA  Terns Pharmaceuticals

Weak diversification

The 3 months correlation between Grifols and Terns is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Grifols SA ADR and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals and Grifols SA 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 Grifols SA ADR are associated (or correlated) with Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of Grifols SA i.e., Grifols SA and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between Grifols SA and Terns Pharmaceuticals

Given the investment horizon of 90 days Grifols SA ADR is expected to under-perform the Terns Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Grifols SA ADR is 1.15 times less risky than Terns Pharmaceuticals. The stock trades about -0.11 of its potential returns per unit of risk. The Terns Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  538.00  in Terns Pharmaceuticals on February 5, 2024 and sell it today you would earn a total of  6.00  from holding Terns Pharmaceuticals or generate 1.12% return on investment over 90 days.

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

Grifols SA ADR  vs.  Terns Pharmaceuticals

Grifols SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental 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.

Terns Pharmaceuticals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Terns Pharmaceuticals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Terns Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grifols SA and Terns Pharmaceuticals

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

The idea behind Grifols SA ADR and Terns Pharmaceuticals 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.