Correlation Between Biogen and AbbVie

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

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

Diversification Opportunities for Biogen and AbbVie

0.17

Correlation Coefficient

Biogen  AbbVie

Average diversification

The 3 months correlation between Biogen and AbbVie is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Biogen Inc and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Biogen 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 Biogen Inc are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Biogen i.e., Biogen and AbbVie go up and down completely randomly.

Pair Corralation between Biogen and AbbVie

Assuming the 90 days trading horizon Biogen Inc is expected to under-perform the AbbVie. But the stock apears to be less risky and, when comparing its historical volatility, Biogen Inc is 1.52 times less risky than AbbVie. The stock trades about -0.15 of its potential returns per unit of risk. The AbbVie Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,503  in AbbVie Inc on September 25, 2024 and sell it today you would earn a total of  429.00  from holding AbbVie Inc or generate 6.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Biogen Inc  vs.  AbbVie Inc

Biogen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

AbbVie Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, AbbVie may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Biogen and AbbVie

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

The idea behind Biogen Inc and AbbVie Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.