Correlation Between AbbVie and NewAmsterdam Pharma

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

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

Diversification Opportunities for AbbVie and NewAmsterdam Pharma

-0.56

Correlation Coefficient

AbbVie  NewAmsterdam Pharma

Excellent diversification

The 3 months correlation between AbbVie and NewAmsterdam is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and NewAmsterdam Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewAmsterdam Pharma 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 NewAmsterdam Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewAmsterdam Pharma has no effect on the direction of AbbVie i.e., AbbVie and NewAmsterdam Pharma go up and down completely randomly.

Pair Corralation between AbbVie and NewAmsterdam Pharma

Given the investment horizon of 90 days AbbVie is expected to generate 3.73 times less return on investment than NewAmsterdam Pharma. But when comparing it to its historical volatility, AbbVie Inc is 9.44 times less risky than NewAmsterdam Pharma. It trades about 0.19 of its potential returns per unit of risk. NewAmsterdam Pharma is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  850.00  in NewAmsterdam Pharma on December 1, 2024 and sell it today you would earn a total of  210.00  from holding NewAmsterdam Pharma or generate 24.71% return on investment over 90 days.

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

AbbVie Inc  vs.  NewAmsterdam Pharma

AbbVie Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, AbbVie showed solid returns over the last few months and may actually be approaching a breakup point.

NewAmsterdam Pharma

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NewAmsterdam Pharma are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, NewAmsterdam Pharma showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AbbVie and NewAmsterdam Pharma

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

The idea behind AbbVie Inc and NewAmsterdam Pharma 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.