Correlation Between GlaxoSmithKline PLC and BAE Systems
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and BAE Systems 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 BAE Systems 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 BAE Systems PLC, you can compare the effects of market volatilities on GlaxoSmithKline PLC and BAE Systems 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 BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and BAE Systems.
Diversification Opportunities for GlaxoSmithKline PLC and BAE Systems
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GlaxoSmithKline and BAE is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems 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 BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and BAE Systems go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and BAE Systems
Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 2.7 times less return on investment than BAE Systems. But when comparing it to its historical volatility, GlaxoSmithKline PLC ADR is 1.03 times less risky than BAE Systems. It trades about 0.03 of its potential returns per unit of risk. BAE Systems PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,131 in BAE Systems PLC on November 19, 2024 and sell it today you would earn a total of 2,059 from holding BAE Systems PLC or generate 49.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. BAE Systems PLC
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| BAE Systems PLC |
GlaxoSmithKline PLC and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and BAE Systems
The main advantage of trading using opposite GlaxoSmithKline PLC and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.| GlaxoSmithKline PLC vs. Novartis AG ADR | GlaxoSmithKline PLC vs. AstraZeneca PLC ADR | GlaxoSmithKline PLC vs. Roche Holding Ltd | GlaxoSmithKline PLC vs. Bristol Myers Squibb |
| BAE Systems vs. Leonardo Spa | BAE Systems vs. QinetiQ Group plc | BAE Systems vs. Leonardo SpA ADR | BAE Systems vs. Huntington Ingalls Industries |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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