Correlation Between GM and GlaxoSmithKline PLC
Can any of the company-specific risk be diversified away by investing in both GM and GlaxoSmithKline PLC 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 GM and GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on GM and GlaxoSmithKline PLC 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 GM with a short position of GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and GlaxoSmithKline PLC.
Diversification Opportunities for GM and GlaxoSmithKline PLC
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and GlaxoSmithKline is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR and GM 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 General Motors are associated (or correlated) with GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of GM i.e., GM and GlaxoSmithKline PLC go up and down completely randomly.
Pair Corralation between GM and GlaxoSmithKline PLC
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.63 times more return on investment than GlaxoSmithKline PLC. However, GM is 1.63 times more volatile than GlaxoSmithKline PLC ADR. It trades about 0.33 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about 0.08 per unit of risk. If you would invest 4,006 in General Motors on December 29, 2023 and sell it today you would earn a total of 453.00 from holding General Motors or generate 11.31% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
General Motors vs. GlaxoSmithKline PLC ADR
Performance |
Timeline |
General Motors |
GlaxoSmithKline PLC ADR |
GM and GlaxoSmithKline PLC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and GlaxoSmithKline PLC
The main advantage of trading using opposite GM and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, GlaxoSmithKline PLC 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 GlaxoSmithKline PLC will offset losses from the drop in GlaxoSmithKline PLC's long position.The idea behind General Motors and GlaxoSmithKline PLC ADR 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.GlaxoSmithKline PLC vs. Agilent Technologies | GlaxoSmithKline PLC vs. Mustang Bio | GlaxoSmithKline PLC vs. Moleculin Biotech | GlaxoSmithKline PLC vs. Clever Leaves Holdings |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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