Correlation Between Abbott Laboratories and TransMedics

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

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

Diversification Opportunities for Abbott Laboratories and TransMedics

-0.37

Correlation Coefficient

Abbott Laboratories  TransMedics

Very good diversification

The 3 months correlation between Abbott and TransMedics is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and TransMedics Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransMedics Group 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 TransMedics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransMedics Group has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and TransMedics go up and down completely randomly.

Pair Corralation between Abbott Laboratories and TransMedics

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 3.1 times less return on investment than TransMedics. But when comparing it to its historical volatility, Abbott Laboratories is 3.33 times less risky than TransMedics. It trades about 0.07 of its potential returns per unit of risk. TransMedics Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,725  in TransMedics Group on July 27, 2024 and sell it today you would earn a total of  2,475  from holding TransMedics Group or generate 25.45% 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.  TransMedics Group

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.

TransMedics Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Abbott Laboratories and TransMedics

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

The idea behind Abbott Laboratories and TransMedics Group 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 Stocks Directory module to find actively traded stocks across global markets.