Correlation Between Abbott Laboratories and National Bank

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

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

Diversification Opportunities for Abbott Laboratories and National Bank

-0.31

Correlation Coefficient

Abbott Laboratories  National Bank

Very good diversification

The 3 months correlation between Abbott and National is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and National Bank go up and down completely randomly.

Pair Corralation between Abbott Laboratories and National Bank

Assuming the 90 days horizon Abbott Laboratories is expected to generate 0.89 times more return on investment than National Bank. However, Abbott Laboratories is 1.12 times less risky than National Bank. It trades about 0.09 of its potential returns per unit of risk. National Bank Holdings is currently generating about -0.12 per unit of risk. If you would invest  10,903  in Abbott Laboratories on December 23, 2024 and sell it today you would earn a total of  781.00  from holding Abbott Laboratories or generate 7.16% 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.  National Bank Holdings

Abbott Laboratories

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in April 2025.

National Bank Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Abbott Laboratories and National Bank

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

The idea behind Abbott Laboratories and National Bank Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.