Correlation Between GlaxoSmithKline PLC and Biogen

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

Diversification Opportunities for GlaxoSmithKline PLC and Biogen

-0.26

Correlation Coefficient

GlaxoSmithKline PLC  Biogen

Very good diversification

The 3 months correlation between GlaxoSmithKline and Biogen is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Biogen go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Biogen

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.61 times more return on investment than Biogen. However, GlaxoSmithKline PLC ADR is 1.64 times less risky than Biogen. It trades about -0.08 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.15 per unit of risk. If you would invest  4,234  in GlaxoSmithKline PLC ADR on January 25, 2024 and sell it today you would lose (148.00) from holding GlaxoSmithKline PLC ADR or give up 3.5% of portfolio value over 90 days.

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

GlaxoSmithKline PLC ADR  vs.  Biogen Inc

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 uncertain basic indicators, GlaxoSmithKline PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Biogen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GlaxoSmithKline PLC and Biogen

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

The idea behind GlaxoSmithKline PLC ADR and Biogen Inc 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.