Correlation Between GlaxoSmithKline Plc and AbbVie

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Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline Plc and AbbVie 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 AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GlaxoSmithKline plc and AbbVie Inc, you can compare the effects of market volatilities on GlaxoSmithKline Plc and AbbVie 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 AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline Plc and AbbVie.

Diversification Opportunities for GlaxoSmithKline Plc and AbbVie

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between GlaxoSmithKline and AbbVie is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline plc and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie 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 are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of GlaxoSmithKline Plc i.e., GlaxoSmithKline Plc and AbbVie go up and down completely randomly.

Pair Corralation between GlaxoSmithKline Plc and AbbVie

Assuming the 90 days trading horizon GlaxoSmithKline Plc is expected to generate 1.2 times less return on investment than AbbVie. But when comparing it to its historical volatility, GlaxoSmithKline plc is 1.27 times less risky than AbbVie. It trades about 0.03 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  298,004  in AbbVie Inc on September 20, 2024 and sell it today you would earn a total of  58,196  from holding AbbVie Inc or generate 19.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

GlaxoSmithKline plc  vs.  AbbVie Inc

 Performance 
       Timeline  
GlaxoSmithKline plc 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days GlaxoSmithKline plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, GlaxoSmithKline Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
AbbVie Inc 

Risk-Adjusted Performance

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

GlaxoSmithKline Plc and AbbVie Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline Plc and AbbVie

The main advantage of trading using opposite GlaxoSmithKline Plc and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline Plc position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.
The idea behind GlaxoSmithKline plc and AbbVie 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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