Correlation Between Abbott Laboratories and STERIS Plc

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

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

Diversification Opportunities for Abbott Laboratories and STERIS Plc

-0.28

Correlation Coefficient

Abbott Laboratories  STERIS Plc

Very good diversification

The 3 months correlation between Abbott and STERIS is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and STERIS plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STERIS plc 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 STERIS Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STERIS plc has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and STERIS Plc go up and down completely randomly.

Pair Corralation between Abbott Laboratories and STERIS Plc

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 0.89 times more return on investment than STERIS Plc. However, Abbott Laboratories is 1.12 times less risky than STERIS Plc. It trades about 0.05 of its potential returns per unit of risk. STERIS plc is currently generating about -0.06 per unit of risk. If you would invest  11,137  in Abbott Laboratories on August 17, 2024 and sell it today you would earn a total of  366.00  from holding Abbott Laboratories or generate 3.29% return on investment over 90 days.

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

Abbott Laboratories  vs.  STERIS plc

Abbott Laboratories

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Abbott Laboratories is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

STERIS plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STERIS plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, STERIS Plc is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Abbott Laboratories and STERIS Plc

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

The idea behind Abbott Laboratories and STERIS 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.