Correlation Between GlaxoSmithKline PLC and PharmaEngine

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

Diversification Opportunities for GlaxoSmithKline PLC and PharmaEngine

-0.81

Correlation Coefficient

GlaxoSmithKline PLC  PharmaEngine

Pay attention - limited upside

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

Pair Corralation between GlaxoSmithKline PLC and PharmaEngine

Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 3.83 times less return on investment than PharmaEngine. But when comparing it to its historical volatility, GlaxoSmithKline PLC ADR is 1.74 times less risky than PharmaEngine. It trades about 0.0 of its potential returns per unit of risk. PharmaEngine is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,726  in PharmaEngine on August 26, 2024 and sell it today you would lose (346.00) from holding PharmaEngine or give up 3.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

GlaxoSmithKline PLC ADR  vs.  PharmaEngine

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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.

PharmaEngine

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PharmaEngine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PharmaEngine may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with GlaxoSmithKline PLC and PharmaEngine

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

The idea behind GlaxoSmithKline PLC ADR and PharmaEngine 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.