Correlation Between GlaxoSmithKline PLC and Aarti Industries

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Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Aarti Industries 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 Aarti Industries 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 Aarti Industries Limited, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Aarti Industries 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 Aarti Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Aarti Industries.

Diversification Opportunities for GlaxoSmithKline PLC and Aarti Industries

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between GlaxoSmithKline and Aarti is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Aarti Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarti Industries 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 Aarti Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarti Industries has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Aarti Industries go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Aarti Industries

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.42 times more return on investment than Aarti Industries. However, GlaxoSmithKline PLC ADR is 2.37 times less risky than Aarti Industries. It trades about -0.23 of its potential returns per unit of risk. Aarti Industries Limited is currently generating about -0.19 per unit of risk. If you would invest  3,634  in GlaxoSmithKline PLC ADR on September 1, 2024 and sell it today you would lose (221.00) from holding GlaxoSmithKline PLC ADR or give up 6.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  Aarti Industries Limited

 Performance 
       Timeline  
GlaxoSmithKline PLC ADR 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
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.
Aarti Industries 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aarti Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

GlaxoSmithKline PLC and Aarti Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and Aarti Industries

The main advantage of trading using opposite GlaxoSmithKline PLC and Aarti Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Aarti Industries 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 Aarti Industries will offset losses from the drop in Aarti Industries' long position.
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The idea behind GlaxoSmithKline PLC ADR and Aarti Industries Limited 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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