Correlation Between GlaxoSmithKline PLC and 74166NAA2

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Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and 74166NAA2 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 74166NAA2 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 ADT Corp 4875, you can compare the effects of market volatilities on GlaxoSmithKline PLC and 74166NAA2 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 74166NAA2. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and 74166NAA2.

Diversification Opportunities for GlaxoSmithKline PLC and 74166NAA2

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GlaxoSmithKline and 74166NAA2 is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and ADT Corp 4875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADT Corp 4875 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 74166NAA2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADT Corp 4875 has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and 74166NAA2 go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and 74166NAA2

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the 74166NAA2. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.77 times less risky than 74166NAA2. The stock trades about -0.3 of its potential returns per unit of risk. The ADT Corp 4875 is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  9,363  in ADT Corp 4875 on August 30, 2024 and sell it today you would lose (222.00) from holding ADT Corp 4875 or give up 2.37% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy90.91%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  ADT Corp 4875

 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.
ADT Corp 4875 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days ADT Corp 4875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 74166NAA2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GlaxoSmithKline PLC and 74166NAA2 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and 74166NAA2

The main advantage of trading using opposite GlaxoSmithKline PLC and 74166NAA2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, 74166NAA2 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 74166NAA2 will offset losses from the drop in 74166NAA2's long position.
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The idea behind GlaxoSmithKline PLC ADR and ADT Corp 4875 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 Stocks Directory module to find actively traded stocks across global markets.

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