Correlation Between Abbott Laboratories and Transport International

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

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

Diversification Opportunities for Abbott Laboratories and Transport International

-0.03

Correlation Coefficient

Abbott Laboratories  Transport International

Good diversification

The 3 months correlation between Abbott and Transport is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Transport International Holdin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transport International 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 Transport International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transport International has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Transport International go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Transport International

Assuming the 90 days trading horizon Abbott Laboratories is expected to generate 0.75 times more return on investment than Transport International. However, Abbott Laboratories is 1.34 times less risky than Transport International. It trades about 0.01 of its potential returns per unit of risk. Transport International Holdings is currently generating about -0.02 per unit of risk. If you would invest  11,190  in Abbott Laboratories on October 25, 2024 and sell it today you would earn a total of  10.00  from holding Abbott Laboratories or generate 0.09% 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.  Transport International Holdin

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 comparatively stable essential indicators, Abbott Laboratories is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Transport International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport International Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Transport International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Abbott Laboratories and Transport International

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

The idea behind Abbott Laboratories and Transport International 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.