Correlation Between Electromed and Abbott Laboratories

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

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

Diversification Opportunities for Electromed and Abbott Laboratories

0.41

Correlation Coefficient

Electromed  Abbott Laboratories

Very weak diversification

The 3 months correlation between Electromed and Abbott is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Electromed and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Electromed 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 Electromed 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 Electromed i.e., Electromed and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Electromed and Abbott Laboratories

Given the investment horizon of 90 days Electromed is expected to generate 2.63 times more return on investment than Abbott Laboratories. However, Electromed is 2.63 times more volatile than Abbott Laboratories. It trades about 0.27 of its potential returns per unit of risk. Abbott Laboratories is currently generating about -0.02 per unit of risk. If you would invest  1,823  in Electromed on September 13, 2024 and sell it today you would earn a total of  1,058  from holding Electromed or generate 58.04% return on investment over 90 days.

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

Electromed  vs.  Abbott Laboratories

Electromed

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electromed are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, Electromed exhibited solid returns over the last few months and may actually be approaching a breakup point.

Abbott Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abbott Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Electromed and Abbott Laboratories

The main advantage of trading using opposite Electromed and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electromed 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 Electromed 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.