Correlation Between AbbVie and GlaxoSmithKline PLC
Can any of the company-specific risk be diversified away by investing in both AbbVie and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AbbVie Inc and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on AbbVie and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and GlaxoSmithKline PLC.
Diversification Opportunities for AbbVie and GlaxoSmithKline PLC
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AbbVie and GlaxoSmithKline is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of AbbVie i.e., AbbVie and GlaxoSmithKline PLC go up and down completely randomly.
Pair Corralation between AbbVie and GlaxoSmithKline PLC
Given the investment horizon of 90 days AbbVie Inc is expected to generate 0.82 times more return on investment than GlaxoSmithKline PLC. However, AbbVie Inc is 1.23 times less risky than GlaxoSmithKline PLC. It trades about 0.19 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about 0.08 per unit of risk. If you would invest 16,473 in AbbVie Inc on November 18, 2024 and sell it today you would earn a total of 2,814 from holding AbbVie Inc or generate 17.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AbbVie Inc vs. GlaxoSmithKline PLC ADR
Performance |
| Timeline |
| AbbVie Inc |
| GlaxoSmithKline PLC ADR |
AbbVie and GlaxoSmithKline PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AbbVie and GlaxoSmithKline PLC
The main advantage of trading using opposite AbbVie and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AbbVie position performs unexpectedly, GlaxoSmithKline PLC 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 GlaxoSmithKline PLC will offset losses from the drop in GlaxoSmithKline PLC's long position.| AbbVie vs. Merck Company | AbbVie vs. Pfizer Inc | AbbVie vs. Eli Lilly and | AbbVie vs. Bristol Myers Squibb |
| GlaxoSmithKline PLC vs. Novartis AG ADR | GlaxoSmithKline PLC vs. AstraZeneca PLC ADR | GlaxoSmithKline PLC vs. Roche Holding Ltd | GlaxoSmithKline PLC vs. Bristol Myers Squibb |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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