Correlation Between Medtronic PLC and AbbVie

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

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

Diversification Opportunities for Medtronic PLC and AbbVie

0.53

Correlation Coefficient

Medtronic PLC  AbbVie

Very weak diversification

The 3 months correlation between Medtronic and AbbVie is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Medtronic PLC 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 Medtronic PLC 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 Medtronic PLC i.e., Medtronic PLC and AbbVie go up and down completely randomly.

Pair Corralation between Medtronic PLC and AbbVie

Considering the 90-day investment horizon Medtronic PLC is expected to generate 1.52 times more return on investment than AbbVie. However, Medtronic PLC is 1.52 times more volatile than AbbVie Inc. It trades about 0.29 of its potential returns per unit of risk. AbbVie Inc is currently generating about -0.21 per unit of risk. If you would invest  8,070  in Medtronic PLC on October 24, 2024 and sell it today you would earn a total of  714.00  from holding Medtronic PLC or generate 8.85% return on investment over 90 days.

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

Medtronic PLC  vs.  AbbVie Inc

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Medtronic PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

AbbVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbbVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental drivers remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Medtronic PLC and AbbVie

The main advantage of trading using opposite Medtronic PLC and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medtronic PLC 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 Medtronic PLC 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.