Correlation Between Roche Holding and GlaxoSmithKline PLC

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

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

Diversification Opportunities for Roche Holding and GlaxoSmithKline PLC

0.77

Correlation Coefficient

Roche Holding  GlaxoSmithKline PLC

Poor diversification

The 3 months correlation between Roche and GlaxoSmithKline is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding Ltd 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 Roche Holding 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 Roche Holding Ltd 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 Roche Holding i.e., Roche Holding and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Roche Holding and GlaxoSmithKline PLC

Assuming the 90 days horizon Roche Holding Ltd is expected to generate 0.95 times more return on investment than GlaxoSmithKline PLC. However, Roche Holding Ltd is 1.05 times less risky than GlaxoSmithKline PLC. It trades about -0.14 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  4,116  in Roche Holding Ltd on September 2, 2024 and sell it today you would lose (500.00) from holding Roche Holding Ltd or give up 12.15% of portfolio value over 90 days.

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

Roche Holding Ltd  vs.  GlaxoSmithKline PLC ADR

Roche Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 Roche Holding and GlaxoSmithKline PLC

The main advantage of trading using opposite Roche Holding and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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 Roche Holding Ltd 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.