Correlation Between GlaxoSmithKline PLC and Alkermes Plc

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

Diversification Opportunities for GlaxoSmithKline PLC and Alkermes Plc

0.48

Correlation Coefficient

GlaxoSmithKline PLC  Alkermes Plc

Very weak diversification

The 3 months correlation between GlaxoSmithKline and Alkermes is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Alkermes Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkermes Plc 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 Alkermes Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkermes Plc has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Alkermes Plc go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Alkermes Plc

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.66 times more return on investment than Alkermes Plc. However, GlaxoSmithKline PLC ADR is 1.51 times less risky than Alkermes Plc. It trades about 0.08 of its potential returns per unit of risk. Alkermes Plc is currently generating about -0.28 per unit of risk. If you would invest  4,179  in GlaxoSmithKline PLC ADR on February 2, 2024 and sell it today you would earn a total of  78.00  from holding GlaxoSmithKline PLC ADR or generate 1.87% return on investment over 90 days.

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

GlaxoSmithKline PLC ADR  vs.  Alkermes Plc

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Alkermes Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkermes Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with GlaxoSmithKline PLC and Alkermes Plc

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

The idea behind GlaxoSmithKline PLC ADR and Alkermes Plc 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.