Correlation Between GlaxoSmithKline PLC and Diageo Plc
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Diageo Plc 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 Diageo Plc 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 Diageo plc, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Diageo Plc 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 Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Diageo Plc.
Diversification Opportunities for GlaxoSmithKline PLC and Diageo Plc
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GlaxoSmithKline and Diageo is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Diageo Plc go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Diageo Plc
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Diageo Plc. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.68 times less risky than Diageo Plc. The stock trades about -0.3 of its potential returns per unit of risk. The Diageo plc is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest 3,252 in Diageo plc on August 25, 2024 and sell it today you would lose (267.00) from holding Diageo plc or give up 8.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Diageo plc
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Diageo plc |
GlaxoSmithKline PLC and Diageo Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Diageo Plc
The main advantage of trading using opposite GlaxoSmithKline PLC and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Diageo Plc 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 Diageo Plc will offset losses from the drop in Diageo Plc's 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 |
| Diageo Plc vs. Diageo PLC ADR | Diageo Plc vs. Constellation Brands Class | Diageo Plc vs. Thai Beverage PCL | Diageo Plc vs. Morningstar Unconstrained Allocation |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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