Correlation Between GlaxoSmithKline PLC and Franklin Biotechnology
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Franklin Biotechnology 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 Franklin Biotechnology 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 Franklin Biotechnology Discovery, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Franklin Biotechnology 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 Franklin Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Franklin Biotechnology.
Diversification Opportunities for GlaxoSmithKline PLC and Franklin Biotechnology
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GlaxoSmithKline and Franklin is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Franklin Biotechnology Discove in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Biotechnology 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 Franklin Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Biotechnology has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Franklin Biotechnology go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Franklin Biotechnology
Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 3.66 times less return on investment than Franklin Biotechnology. In addition to that, GlaxoSmithKline PLC is 1.07 times more volatile than Franklin Biotechnology Discovery. It trades about 0.02 of its total potential returns per unit of risk. Franklin Biotechnology Discovery is currently generating about 0.07 per unit of volatility. If you would invest 11,228 in Franklin Biotechnology Discovery on August 29, 2024 and sell it today you would earn a total of 2,950 from holding Franklin Biotechnology Discovery or generate 26.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Franklin Biotechnology Discove
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Franklin Biotechnology |
GlaxoSmithKline PLC and Franklin Biotechnology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Franklin Biotechnology
The main advantage of trading using opposite GlaxoSmithKline PLC and Franklin Biotechnology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Franklin Biotechnology 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 Franklin Biotechnology will offset losses from the drop in Franklin Biotechnology'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 |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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