Correlation Between AstraZeneca PLC and GlaxoSmithKline PLC

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

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

Diversification Opportunities for AstraZeneca PLC and GlaxoSmithKline PLC

0.91

Correlation Coefficient

AstraZeneca PLC  GlaxoSmithKline PLC

Almost no diversification

The 3 months correlation between AstraZeneca and GlaxoSmithKline is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding AstraZeneca PLC 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 AstraZeneca 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 AstraZeneca PLC 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 AstraZeneca PLC i.e., AstraZeneca PLC and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between AstraZeneca PLC and GlaxoSmithKline PLC

Considering the 90-day investment horizon AstraZeneca PLC ADR is expected to generate 1.64 times more return on investment than GlaxoSmithKline PLC. However, AstraZeneca PLC is 1.64 times more volatile than GlaxoSmithKline PLC ADR. It trades about -0.11 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about -0.24 per unit of risk. If you would invest  7,142  in AstraZeneca PLC ADR on September 2, 2024 and sell it today you would lose (380.00) from holding AstraZeneca PLC ADR or give up 5.32% of portfolio value over 90 days.

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

AstraZeneca PLC ADR  vs.  GlaxoSmithKline PLC ADR

AstraZeneca PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AstraZeneca PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with AstraZeneca PLC and GlaxoSmithKline PLC

The main advantage of trading using opposite AstraZeneca PLC and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AstraZeneca PLC 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 AstraZeneca PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.