Correlation Between Grifols SA and GlaxoSmithKline PLC

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

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

Diversification Opportunities for Grifols SA and GlaxoSmithKline PLC

-0.22

Correlation Coefficient

Grifols SA  GlaxoSmithKline PLC

Very good diversification

The 3 months correlation between Grifols and GlaxoSmithKline is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Grifols SA ADR 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 Grifols SA 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 Grifols SA ADR 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 Grifols SA i.e., Grifols SA and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Grifols SA and GlaxoSmithKline PLC

Given the investment horizon of 90 days Grifols SA is expected to generate 3.9 times less return on investment than GlaxoSmithKline PLC. In addition to that, Grifols SA is 3.55 times more volatile than GlaxoSmithKline PLC ADR. It trades about 0.0 of its total potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about 0.07 per unit of volatility. If you would invest  3,479  in GlaxoSmithKline PLC ADR on January 25, 2024 and sell it today you would earn a total of  645.00  from holding GlaxoSmithKline PLC ADR or generate 18.54% return on investment over 90 days.

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

Grifols SA ADR  vs.  GlaxoSmithKline PLC ADR

Grifols SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, GlaxoSmithKline PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Grifols SA and GlaxoSmithKline PLC

The main advantage of trading using opposite Grifols SA and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grifols SA 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 Grifols SA ADR 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.