Correlation Between GlaxoSmithKline PLC and Microchip Technology
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Microchip Technology 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 Microchip Technology 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 Microchip Technology Incorporated, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Microchip Technology 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 Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Microchip Technology.
Diversification Opportunities for GlaxoSmithKline PLC and Microchip Technology
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GlaxoSmithKline and Microchip is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Microchip Technology go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Microchip Technology
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Microchip Technology. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.32 times less risky than Microchip Technology. The stock trades about -0.24 of its potential returns per unit of risk. The Microchip Technology Incorporated is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 7,231 in Microchip Technology Incorporated on August 28, 2024 and sell it today you would lose (927.00) from holding Microchip Technology Incorporated or give up 12.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Microchip Technology Incorpora
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Microchip Technology |
GlaxoSmithKline PLC and Microchip Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Microchip Technology
The main advantage of trading using opposite GlaxoSmithKline PLC and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Microchip Technology 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 Microchip Technology will offset losses from the drop in Microchip Technology'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 |
| Microchip Technology vs. NVIDIA | Microchip Technology vs. NVIDIA | Microchip Technology vs. QUALCOMM Incorporated | Microchip Technology vs. Intel |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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