Correlation Between Volkswagen and Abbott Laboratories

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

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

Diversification Opportunities for Volkswagen and Abbott Laboratories

-0.81

Correlation Coefficient

Volkswagen  Abbott Laboratories

Pay attention - limited upside

The 3 months correlation between Volkswagen and Abbott is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Volkswagen 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 Volkswagen AG VZO 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 Volkswagen i.e., Volkswagen and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Volkswagen and Abbott Laboratories

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the Abbott Laboratories. In addition to that, Volkswagen is 1.12 times more volatile than Abbott Laboratories. It trades about -0.03 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about 0.03 per unit of volatility. If you would invest  9,768  in Abbott Laboratories on October 5, 2024 and sell it today you would earn a total of  1,246  from holding Abbott Laboratories or generate 12.76% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  Abbott Laboratories

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Abbott Laboratories

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Abbott Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Volkswagen and Abbott Laboratories

The main advantage of trading using opposite Volkswagen and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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 Volkswagen AG VZO 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.