Correlation Between GlaxoSmithKline PLC and Hubei Xingfa

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Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Hubei Xingfa 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 GlaxoSmithKline PLC and Hubei Xingfa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GlaxoSmithKline PLC ADR and Hubei Xingfa Chemicals, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Hubei Xingfa 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 GlaxoSmithKline PLC with a short position of Hubei Xingfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Hubei Xingfa.

Diversification Opportunities for GlaxoSmithKline PLC and Hubei Xingfa

-0.88
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between GlaxoSmithKline and Hubei is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC ADR are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Hubei Xingfa go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Hubei Xingfa

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Hubei Xingfa. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.95 times less risky than Hubei Xingfa. The stock trades about -0.25 of its potential returns per unit of risk. The Hubei Xingfa Chemicals is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,836  in Hubei Xingfa Chemicals on August 28, 2024 and sell it today you would earn a total of  484.00  from holding Hubei Xingfa Chemicals or generate 26.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy90.63%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  Hubei Xingfa Chemicals

 Performance 
       Timeline  
GlaxoSmithKline PLC ADR 

Risk-Adjusted Performance

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Over the last 90 days GlaxoSmithKline PLC ADR 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 basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
Hubei Xingfa Chemicals 

Risk-Adjusted Performance

12 of 100

 
Weak
 
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Good
Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

GlaxoSmithKline PLC and Hubei Xingfa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and Hubei Xingfa

The main advantage of trading using opposite GlaxoSmithKline PLC and Hubei Xingfa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Hubei Xingfa 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 Hubei Xingfa will offset losses from the drop in Hubei Xingfa's long position.
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The idea behind GlaxoSmithKline PLC ADR and Hubei Xingfa Chemicals 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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