Correlation Between Abbott Laboratories and Japan Medical

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

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

Diversification Opportunities for Abbott Laboratories and Japan Medical

0.42

Correlation Coefficient

Abbott Laboratories  Japan Medical

Very weak diversification

The 3 months correlation between Abbott and Japan is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Japan Medical Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Medical Dynamic 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 Japan Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Medical Dynamic has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Japan Medical go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Japan Medical

Assuming the 90 days trading horizon Abbott Laboratories is expected to generate 0.66 times more return on investment than Japan Medical. However, Abbott Laboratories is 1.53 times less risky than Japan Medical. It trades about 0.21 of its potential returns per unit of risk. Japan Medical Dynamic is currently generating about -0.03 per unit of risk. If you would invest  11,227  in Abbott Laboratories on November 28, 2024 and sell it today you would earn a total of  1,619  from holding Abbott Laboratories or generate 14.42% return on investment over 90 days.

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

Abbott Laboratories  vs.  Japan Medical Dynamic

Abbott Laboratories

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Abbott Laboratories unveiled solid returns over the last few months and may actually be approaching a breakup point.

Japan Medical Dynamic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Medical Dynamic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Medical 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 Japan Medical

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

The idea behind Abbott Laboratories and Japan Medical Dynamic 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.