Correlation Between GlaxoSmithKline PLC and EXPEDIA

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

Diversification Opportunities for GlaxoSmithKline PLC and EXPEDIA

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GlaxoSmithKline and EXPEDIA is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and EXPEDIA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXPEDIA INC 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 EXPEDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXPEDIA INC has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and EXPEDIA go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and EXPEDIA

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 2.44 times more return on investment than EXPEDIA. However, GlaxoSmithKline PLC is 2.44 times more volatile than EXPEDIA INC. It trades about 0.02 of its potential returns per unit of risk. EXPEDIA INC is currently generating about 0.03 per unit of risk. If you would invest  3,273  in GlaxoSmithKline PLC ADR on August 31, 2024 and sell it today you would earn a total of  140.00  from holding GlaxoSmithKline PLC ADR or generate 4.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.93%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  EXPEDIA INC

 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.
EXPEDIA INC 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days EXPEDIA INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, EXPEDIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

GlaxoSmithKline PLC and EXPEDIA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and EXPEDIA

The main advantage of trading using opposite GlaxoSmithKline PLC and EXPEDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, EXPEDIA 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 EXPEDIA will offset losses from the drop in EXPEDIA's long position.
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The idea behind GlaxoSmithKline PLC ADR and EXPEDIA INC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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