Correlation Between GlaxoSmithKline PLC and Reading International
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Reading International 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 Reading International 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 Reading International, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Reading International 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 Reading International. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Reading International.
Diversification Opportunities for GlaxoSmithKline PLC and Reading International
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GlaxoSmithKline and Reading is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Reading International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reading International 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 Reading International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reading International has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Reading International go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Reading International
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Reading International. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 3.34 times less risky than Reading International. The stock trades about -0.23 of its potential returns per unit of risk. The Reading International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 141.00 in Reading International on August 31, 2024 and sell it today you would earn a total of 5.00 from holding Reading International or generate 3.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Reading International
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Reading International |
GlaxoSmithKline PLC and Reading International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Reading International
The main advantage of trading using opposite GlaxoSmithKline PLC and Reading International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Reading International 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 Reading International will offset losses from the drop in Reading International'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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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