Correlation Between GlaxoSmithKline PLC and East Japan

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

Diversification Opportunities for GlaxoSmithKline PLC and East Japan

0.56

Correlation Coefficient

GlaxoSmithKline PLC  East Japan

Very weak diversification

The 3 months correlation between GlaxoSmithKline and East is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway 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 East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and East Japan go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and East Japan

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the East Japan. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.35 times less risky than East Japan. The stock trades about -0.23 of its potential returns per unit of risk. The East Japan Railway is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  999.00  in East Japan Railway on September 1, 2024 and sell it today you would lose (31.00) from holding East Japan Railway or give up 3.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

GlaxoSmithKline PLC ADR  vs.  East Japan Railway

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.

East Japan Railway

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in East Japan Railway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, East Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GlaxoSmithKline PLC and East Japan

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

The idea behind GlaxoSmithKline PLC ADR and East Japan Railway 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.