Correlation Between GlaxoSmithKline PLC and Theravance Biopharma

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

Diversification Opportunities for GlaxoSmithKline PLC and Theravance Biopharma

-0.64

Correlation Coefficient

GlaxoSmithKline PLC  Theravance Biopharma

Excellent diversification

The 3 months correlation between GlaxoSmithKline and Theravance is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Theravance Biopharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Theravance Biopharma 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 Theravance Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Theravance Biopharma has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Theravance Biopharma go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Theravance Biopharma

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Theravance Biopharma. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 2.87 times less risky than Theravance Biopharma. The stock trades about -0.14 of its potential returns per unit of risk. The Theravance Biopharma is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  903.00  in Theravance Biopharma on January 30, 2024 and sell it today you would earn a total of  9.00  from holding Theravance Biopharma or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

GlaxoSmithKline PLC ADR  vs.  Theravance Biopharma

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Theravance Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Theravance Biopharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Theravance Biopharma is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GlaxoSmithKline PLC and Theravance Biopharma

The main advantage of trading using opposite GlaxoSmithKline PLC and Theravance Biopharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Theravance Biopharma 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 Theravance Biopharma will offset losses from the drop in Theravance Biopharma's long position.

The idea behind GlaxoSmithKline PLC ADR and Theravance Biopharma 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.