Correlation Between Abbott Laboratories and Insulet

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

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

Diversification Opportunities for Abbott Laboratories and Insulet

0.14

Correlation Coefficient

Abbott Laboratories  Insulet

Average diversification

The 3 months correlation between Abbott and Insulet is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Insulet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insulet 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 Insulet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insulet has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Insulet go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Insulet

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 0.77 times more return on investment than Insulet. However, Abbott Laboratories is 1.3 times less risky than Insulet. It trades about 0.18 of its potential returns per unit of risk. Insulet is currently generating about 0.0 per unit of risk. If you would invest  11,221  in Abbott Laboratories on December 29, 2024 and sell it today you would earn a total of  1,914  from holding Abbott Laboratories or generate 17.06% return on investment over 90 days.

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

Abbott Laboratories  vs.  Insulet

Abbott Laboratories

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 14 (%) 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.

Insulet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insulet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Insulet is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Abbott Laboratories and Insulet

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

The idea behind Abbott Laboratories and Insulet 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.