Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Addex Therapeutics 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 Addex Therapeutics 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 Addex Therapeutics, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Addex Therapeutics 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 Addex Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Addex Therapeutics.
Diversification Opportunities for GlaxoSmithKline PLC and Addex Therapeutics
The 3 months correlation between GlaxoSmithKline and Addex is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Addex Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addex Therapeutics 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 Addex Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addex Therapeutics has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Addex Therapeutics go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Addex Therapeutics
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.19 times more return on investment than Addex Therapeutics. However, GlaxoSmithKline PLC ADR is 5.17 times less risky than Addex Therapeutics. It trades about 0.02 of its potential returns per unit of risk. Addex Therapeutics is currently generating about -0.09 per unit of risk. If you would invest 3,514 in GlaxoSmithKline PLC ADR on August 30, 2023 and sell it today you would earn a total of 49.00 from holding GlaxoSmithKline PLC ADR or generate 1.39% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 1 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.
Over the last 90 days Addex Therapeutics 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 December 2023. The recent disarray may also be a sign of long period up-swing for the firm insiders.
GlaxoSmithKline PLC and Addex Therapeutics Volatility Contrast
Predicted Return Density
Pair Trading with GlaxoSmithKline PLC and Addex Therapeutics
The main advantage of trading using opposite GlaxoSmithKline PLC and Addex Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Addex Therapeutics 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 Addex Therapeutics will offset losses from the drop in Addex Therapeutics' long position.
The idea behind GlaxoSmithKline PLC ADR and Addex Therapeutics 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.
Check out your portfolio center.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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
Use Bollinger Bands indicator to analyze target price for a given investing horizon
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