Correlation Between Smith Nephew and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both Smith Nephew and Abbott Laboratories 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 Smith Nephew and Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith Nephew plc and Abbott Laboratories, you can compare the effects of market volatilities on Smith Nephew and Abbott Laboratories 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 Smith Nephew with a short position of Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and Abbott Laboratories.
Diversification Opportunities for Smith Nephew and Abbott Laboratories
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Smith and Abbott is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew plc and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Smith Nephew 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 Smith Nephew plc are associated (or correlated) with Abbott Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott Laboratories has no effect on the direction of Smith Nephew i.e., Smith Nephew and Abbott Laboratories go up and down completely randomly.
Pair Corralation between Smith Nephew and Abbott Laboratories
Assuming the 90 days horizon Smith Nephew plc is expected to under-perform the Abbott Laboratories. In addition to that, Smith Nephew is 1.82 times more volatile than Abbott Laboratories. It trades about -0.08 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about -0.07 per unit of volatility. If you would invest 11,363 in Abbott Laboratories on January 21, 2024 and sell it today you would lose (635.00) from holding Abbott Laboratories or give up 5.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Smith Nephew plc vs. Abbott Laboratories
Performance |
| Timeline |
| Smith Nephew plc |
| Abbott Laboratories |
Smith Nephew and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smith Nephew and Abbott Laboratories
The main advantage of trading using opposite Smith Nephew and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Nephew position performs unexpectedly, Abbott Laboratories 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 Abbott Laboratories will offset losses from the drop in Abbott Laboratories' long position.The idea behind Smith Nephew plc and Abbott Laboratories 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.| Abbott Laboratories vs. AbbVie Inc | Abbott Laboratories vs. Bristol Myers Squibb | Abbott Laboratories vs. Johnson Johnson | Abbott Laboratories vs. Medtronic PLC |
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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