Correlation Between Abbott Laboratories and AbbVie

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

By analyzing existing cross correlation between Abbott Laboratories and AbbVie Inc, you can compare the effects of market volatilities on Abbott Laboratories and AbbVie 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 Abbott Laboratories with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abbott Laboratories and AbbVie.

Diversification Opportunities for Abbott Laboratories and AbbVie

0.55

Correlation Coefficient

Abbott Laboratories  AbbVie

Very weak diversification

The 3 months correlation between Abbott and AbbVie is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Abbott Laboratories 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 Abbott Laboratories are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and AbbVie go up and down completely randomly.

Pair Corralation between Abbott Laboratories and AbbVie

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 1.21 times more return on investment than AbbVie. However, Abbott Laboratories is 1.21 times more volatile than AbbVie Inc. It trades about 0.09 of its potential returns per unit of risk. AbbVie Inc is currently generating about -0.05 per unit of risk. If you would invest  11,208  in Abbott Laboratories on July 27, 2024 and sell it today you would earn a total of  214.00  from holding Abbott Laboratories or generate 1.91% return on investment over 90 days.

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

Abbott Laboratories  vs.  AbbVie Inc

Abbott Laboratories

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental drivers, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in November 2024.

AbbVie Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental drivers, AbbVie is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Abbott Laboratories and AbbVie

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

The idea behind Abbott Laboratories and AbbVie 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.