Correlation Between Gap and GlaxoSmithKline PLC

Can any of the company-specific risk be diversified away by investing in both Gap 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 Gap and GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gap Inc and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on Gap 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 Gap with a short position of GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap and GlaxoSmithKline PLC.

Diversification Opportunities for Gap and GlaxoSmithKline PLC

0.43

Correlation Coefficient

Gap  GlaxoSmithKline PLC

Very weak diversification

The 3 months correlation between Gap and GlaxoSmithKline is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc 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 Gap 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 Gap Inc 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 Gap i.e., Gap and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Gap and GlaxoSmithKline PLC

Considering the 90-day investment horizon Gap Inc is expected to under-perform the GlaxoSmithKline PLC. In addition to that, Gap is 2.88 times more volatile than GlaxoSmithKline PLC ADR. It trades about -0.49 of its total potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about -0.38 per unit of volatility. If you would invest  4,193  in GlaxoSmithKline PLC ADR on January 20, 2024 and sell it today you would lose (266.00) from holding GlaxoSmithKline PLC ADR or give up 6.34% of portfolio value over 90 days.

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

Gap Inc  vs.  GlaxoSmithKline PLC ADR

Gap Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gap Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Gap unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Gap and GlaxoSmithKline PLC

The main advantage of trading using opposite Gap and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap 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 Gap Inc 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.