Correlation Between AbbVie and Medtronic PLC

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

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

Diversification Opportunities for AbbVie and Medtronic PLC

0.64

Correlation Coefficient

AbbVie  Medtronic PLC

Poor diversification

The 3 months correlation between AbbVie and Medtronic is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and AbbVie 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 AbbVie Inc are associated (or correlated) with Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of AbbVie i.e., AbbVie and Medtronic PLC go up and down completely randomly.

Pair Corralation between AbbVie and Medtronic PLC

Given the investment horizon of 90 days AbbVie Inc is expected to generate 2.15 times more return on investment than Medtronic PLC. However, AbbVie is 2.15 times more volatile than Medtronic PLC. It trades about -0.04 of its potential returns per unit of risk. Medtronic PLC is currently generating about -0.16 per unit of risk. If you would invest  19,280  in AbbVie Inc on October 10, 2024 and sell it today you would lose (1,327) from holding AbbVie Inc or give up 6.88% of portfolio value over 90 days.

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

AbbVie Inc  vs.  Medtronic PLC

AbbVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbbVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, AbbVie is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC 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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with AbbVie and Medtronic PLC

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

The idea behind AbbVie Inc and Medtronic 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.