Correlation Between Salesforce and Gilead Sciences

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

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

Diversification Opportunities for Salesforce and Gilead Sciences

0.18

Correlation Coefficient

Salesforce  Gilead Sciences

Average diversification

The 3 months correlation between Salesforce and Gilead is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Gilead Sciences go up and down completely randomly.

Pair Corralation between Salesforce and Gilead Sciences

Considering the 90-day investment horizon Salesforce is expected to generate 1.97 times more return on investment than Gilead Sciences. However, Salesforce is 1.97 times more volatile than Gilead Sciences. It trades about -0.21 of its potential returns per unit of risk. Gilead Sciences is currently generating about -0.52 per unit of risk. If you would invest  30,118  in Salesforce on January 28, 2024 and sell it today you would lose (2,689) from holding Salesforce or give up 8.93% of portfolio value over 90 days.

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

Salesforce  vs.  Gilead Sciences

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Salesforce and Gilead Sciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.