Correlation Between GlaxoSmithKline PLC and Data Patterns

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

Diversification Opportunities for GlaxoSmithKline PLC and Data Patterns

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GlaxoSmithKline and Data is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Data Patterns Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Patterns Limited 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 Data Patterns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Patterns Limited has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Data Patterns go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Data Patterns

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Data Patterns. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 2.86 times less risky than Data Patterns. The stock trades about -0.33 of its potential returns per unit of risk. The Data Patterns Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  225,875  in Data Patterns Limited on August 25, 2024 and sell it today you would earn a total of  2,425  from holding Data Patterns Limited or generate 1.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  Data Patterns Limited

 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.
Data Patterns Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Data Patterns Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

GlaxoSmithKline PLC and Data Patterns Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and Data Patterns

The main advantage of trading using opposite GlaxoSmithKline PLC and Data Patterns positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Data Patterns 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 Data Patterns will offset losses from the drop in Data Patterns' long position.
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The idea behind GlaxoSmithKline PLC ADR and Data Patterns 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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