Correlation Between GlaxoSmithKline PLC and ABC TRANSPORT

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

Diversification Opportunities for GlaxoSmithKline PLC and ABC TRANSPORT

-0.8
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between GlaxoSmithKline and ABC is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and ABC TRANSPORT PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC TRANSPORT PLC 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 ABC TRANSPORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC TRANSPORT PLC has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and ABC TRANSPORT go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and ABC TRANSPORT

Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 20.07 times less return on investment than ABC TRANSPORT. But when comparing it to its historical volatility, GlaxoSmithKline PLC ADR is 3.56 times less risky than ABC TRANSPORT. It trades about 0.02 of its potential returns per unit of risk. ABC TRANSPORT PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  41.00  in ABC TRANSPORT PLC on August 31, 2024 and sell it today you would earn a total of  76.00  from holding ABC TRANSPORT PLC or generate 185.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy97.33%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  ABC TRANSPORT PLC

 Performance 
       Timeline  
GlaxoSmithKline PLC ADR 

Risk-Adjusted Performance

0 of 100

 
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.
ABC TRANSPORT PLC 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in ABC TRANSPORT PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ABC TRANSPORT displayed solid returns over the last few months and may actually be approaching a breakup point.

GlaxoSmithKline PLC and ABC TRANSPORT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and ABC TRANSPORT

The main advantage of trading using opposite GlaxoSmithKline PLC and ABC TRANSPORT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, ABC TRANSPORT 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 ABC TRANSPORT will offset losses from the drop in ABC TRANSPORT's long position.
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The idea behind GlaxoSmithKline PLC ADR and ABC TRANSPORT PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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