Correlation Between Amgen and Gilead Sciences

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

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

Diversification Opportunities for Amgen and Gilead Sciences

-0.24

Correlation Coefficient

Amgen  Gilead Sciences

Very good diversification

The 3 months correlation between Amgen and Gilead is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences and Amgen 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 Amgen 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 Amgen i.e., Amgen and Gilead Sciences go up and down completely randomly.

Pair Corralation between Amgen and Gilead Sciences

Given the investment horizon of 90 days Amgen is expected to generate 9.92 times less return on investment than Gilead Sciences. But when comparing it to its historical volatility, Amgen Inc is 1.17 times less risky than Gilead Sciences. It trades about 0.02 of its potential returns per unit of risk. Gilead Sciences is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,321  in Gilead Sciences on August 7, 2024 and sell it today you would earn a total of  2,663  from holding Gilead Sciences or generate 42.13% return on investment over 90 days.

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

Amgen Inc  vs.  Gilead Sciences

Amgen Inc

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Amgen is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Gilead Sciences

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Gilead Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amgen and Gilead Sciences

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

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.