Correlation Between Abbott Laboratories and OBSERVE MEDICAL

Can any of the company-specific risk be diversified away by investing in both Abbott Laboratories and OBSERVE 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 OBSERVE 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 OBSERVE MEDICAL ASA, you can compare the effects of market volatilities on Abbott Laboratories and OBSERVE 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 OBSERVE MEDICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abbott Laboratories and OBSERVE MEDICAL.

Diversification Opportunities for Abbott Laboratories and OBSERVE MEDICAL

-0.12

Correlation Coefficient

Abbott Laboratories  OBSERVE MEDICAL

Good diversification

The 3 months correlation between Abbott and OBSERVE is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and OBSERVE MEDICAL ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OBSERVE MEDICAL ASA has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and OBSERVE MEDICAL go up and down completely randomly.

Pair Corralation between Abbott Laboratories and OBSERVE MEDICAL

Assuming the 90 days trading horizon Abbott Laboratories is expected to generate 95.48 times less return on investment than OBSERVE MEDICAL. But when comparing it to its historical volatility, Abbott Laboratories is 30.14 times less risky than OBSERVE MEDICAL. It trades about 0.02 of its potential returns per unit of risk. OBSERVE MEDICAL ASA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  20.00  in OBSERVE MEDICAL ASA on September 29, 2024 and sell it today you would lose (17.04) from holding OBSERVE MEDICAL ASA or give up 85.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Abbott Laboratories  vs.  OBSERVE MEDICAL ASA

Abbott Laboratories

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in January 2025.

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in OBSERVE MEDICAL ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, OBSERVE MEDICAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Abbott Laboratories and OBSERVE MEDICAL

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

The idea behind Abbott Laboratories and OBSERVE MEDICAL ASA 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.