Correlation Between GlaxoSmithKline PLC and Cboe UK

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

Diversification Opportunities for GlaxoSmithKline PLC and Cboe UK

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between GlaxoSmithKline and Cboe is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Cboe UK Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe UK Healthcare 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 Cboe UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe UK Healthcare has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Cboe UK go up and down completely randomly.
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Pair Corralation between GlaxoSmithKline PLC and Cboe UK

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 1.25 times more return on investment than Cboe UK. However, GlaxoSmithKline PLC is 1.25 times more volatile than Cboe UK Healthcare. It trades about 0.02 of its potential returns per unit of risk. Cboe UK Healthcare is currently generating about -0.01 per unit of risk. If you would invest  3,273  in GlaxoSmithKline PLC ADR on August 31, 2024 and sell it today you would earn a total of  140.00  from holding GlaxoSmithKline PLC ADR or generate 4.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy97.91%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  Cboe UK Healthcare

 Performance 
       Timeline  

GlaxoSmithKline PLC and Cboe UK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and Cboe UK

The main advantage of trading using opposite GlaxoSmithKline PLC and Cboe UK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Cboe UK 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 Cboe UK will offset losses from the drop in Cboe UK's long position.
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The idea behind GlaxoSmithKline PLC ADR and Cboe UK Healthcare 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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