Correlation Between Major Drilling and Abbott Laboratories

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

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

Diversification Opportunities for Major Drilling and Abbott Laboratories

0.42

Correlation Coefficient

Major Drilling  Abbott Laboratories

Very weak diversification

The 3 months correlation between Major and Abbott is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Major Drilling 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 Major Drilling Group 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 Major Drilling i.e., Major Drilling and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Major Drilling and Abbott Laboratories

Assuming the 90 days horizon Major Drilling is expected to generate 1.02 times less return on investment than Abbott Laboratories. In addition to that, Major Drilling is 2.21 times more volatile than Abbott Laboratories. It trades about 0.03 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  10,545  in Abbott Laboratories on October 10, 2024 and sell it today you would earn a total of  433.00  from holding Abbott Laboratories or generate 4.11% return on investment over 90 days.

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

Major Drilling Group  vs.  Abbott Laboratories

Major Drilling Group

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Abbott Laboratories

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Abbott Laboratories is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Major Drilling and Abbott Laboratories

The main advantage of trading using opposite Major Drilling and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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 Major Drilling Group 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.