Correlation Between GlaxoSmithKline PLC and Horizon Pharma

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

Diversification Opportunities for GlaxoSmithKline PLC and Horizon Pharma

0.24

Correlation Coefficient

GlaxoSmithKline PLC  Horizon Pharma

Modest diversification

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

Pair Corralation between GlaxoSmithKline PLC and Horizon Pharma

Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 3.15 times less return on investment than Horizon Pharma. In addition to that, GlaxoSmithKline PLC is 1.21 times more volatile than Horizon Pharma PLC. It trades about 0.09 of its total potential returns per unit of risk. Horizon Pharma PLC is currently generating about 0.33 per unit of volatility. If you would invest  9,994  in Horizon Pharma PLC on January 24, 2024 and sell it today you would earn a total of  1,636  from holding Horizon Pharma PLC or generate 16.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	27.57%
Values	Daily Returns

GlaxoSmithKline PLC ADR  vs.  Horizon Pharma PLC

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 6 (%) 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.

Horizon Pharma PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Horizon Pharma PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Horizon Pharma is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GlaxoSmithKline PLC and Horizon Pharma

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

The idea behind GlaxoSmithKline PLC ADR and Horizon Pharma 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.