Correlation Between Boston Scientific and Abbott Laboratories

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

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

Diversification Opportunities for Boston Scientific and Abbott Laboratories

0.92

Correlation Coefficient

Boston Scientific  Abbott Laboratories

Almost no diversification

The 3 months correlation between Boston and Abbott is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Boston Scientific and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Boston Scientific 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 Boston Scientific are associated (or correlated) with Abbott Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott Laboratories has no effect on the direction of Boston Scientific i.e., Boston Scientific and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Boston Scientific and Abbott Laboratories

Assuming the 90 days trading horizon Boston Scientific is expected to generate 0.75 times more return on investment than Abbott Laboratories. However, Boston Scientific is 1.33 times less risky than Abbott Laboratories. It trades about 0.3 of its potential returns per unit of risk. Abbott Laboratories is currently generating about 0.16 per unit of risk. If you would invest  45,360  in Boston Scientific on September 27, 2024 and sell it today you would earn a total of  10,098  from holding Boston Scientific or generate 22.26% return on investment over 90 days.

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

Boston Scientific  vs.  Abbott Laboratories

Boston Scientific

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Scientific are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Boston Scientific sustained solid returns over the last few months and may actually be approaching a breakup point.

Abbott Laboratories

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Abbott Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Scientific and Abbott Laboratories

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

The idea behind Boston Scientific and Abbott Laboratories 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.