Correlation Between Abbott Laboratories and Penumbra

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

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

Diversification Opportunities for Abbott Laboratories and Penumbra

0.59

Correlation Coefficient

Abbott Laboratories  Penumbra

Very weak diversification

The 3 months correlation between Abbott and Penumbra is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Penumbra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penumbra 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 Penumbra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penumbra has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Penumbra go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Penumbra

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 4.46 times less return on investment than Penumbra. But when comparing it to its historical volatility, Abbott Laboratories is 2.12 times less risky than Penumbra. It trades about 0.06 of its potential returns per unit of risk. Penumbra is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  20,497  in Penumbra on September 3, 2024 and sell it today you would earn a total of  3,987  from holding Penumbra or generate 19.45% 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.  Penumbra

Abbott Laboratories

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Abbott Laboratories is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Penumbra

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penumbra are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Penumbra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Abbott Laboratories and Penumbra

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

The idea behind Abbott Laboratories and Penumbra 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.