Correlation Between Abbott Laboratories and Butterfly Network

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

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

Diversification Opportunities for Abbott Laboratories and Butterfly Network

0.63

Correlation Coefficient

Abbott Laboratories  Butterfly Network

Poor diversification

The 3 months correlation between Abbott and Butterfly is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Butterfly Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Butterfly Network 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 Butterfly Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Butterfly Network has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Butterfly Network go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Butterfly Network

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 1.16 times less return on investment than Butterfly Network. But when comparing it to its historical volatility, Abbott Laboratories is 5.45 times less risky than Butterfly Network. It trades about 0.23 of its potential returns per unit of risk. Butterfly Network is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  337.00  in Butterfly Network on December 1, 2024 and sell it today you would earn a total of  25.00  from holding Butterfly Network or generate 7.42% return on investment over 90 days.

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

Abbott Laboratories  vs.  Butterfly Network

Abbott Laboratories

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental drivers, Abbott Laboratories unveiled solid returns over the last few months and may actually be approaching a breakup point.

Butterfly Network

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Butterfly Network are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Butterfly Network showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Abbott Laboratories and Butterfly Network

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

The idea behind Abbott Laboratories and Butterfly Network 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.