Correlation Between GlaxoSmithKline PLC and Novartis

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

Diversification Opportunities for GlaxoSmithKline PLC and Novartis

-0.24
  Correlation Coefficient

Very good diversification

The 3 months correlation between GlaxoSmithKline and Novartis is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR 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 Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Novartis go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Novartis

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 1.13 times more return on investment than Novartis. However, GlaxoSmithKline PLC is 1.13 times more volatile than Novartis AG ADR. It trades about 0.09 of its potential returns per unit of risk. Novartis AG ADR is currently generating about -0.2 per unit of risk. If you would invest  4,238  in GlaxoSmithKline PLC ADR on December 29, 2023 and sell it today you would earn a total of  75.00  from holding GlaxoSmithKline PLC ADR or generate 1.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.65%
ValuesDaily Returns

GlaxoSmithKline PLC ADR  vs.  Novartis AG ADR

 Performance 
       Timeline  
GlaxoSmithKline PLC ADR 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, GlaxoSmithKline PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.
Novartis AG ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Novartis is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

GlaxoSmithKline PLC and Novartis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GlaxoSmithKline PLC and Novartis

The main advantage of trading using opposite GlaxoSmithKline PLC and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.
The idea behind GlaxoSmithKline PLC ADR and Novartis AG 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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