Correlation Between Demant AS and Abbott Laboratories

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

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

Diversification Opportunities for Demant AS and Abbott Laboratories

-0.31

Correlation Coefficient

Demant AS  Abbott Laboratories

Very good diversification

The 3 months correlation between Demant and Abbott is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Demant AS ADR and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Demant AS 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 Demant AS ADR 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 Demant AS i.e., Demant AS and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Demant AS and Abbott Laboratories

Assuming the 90 days horizon Demant AS ADR is expected to under-perform the Abbott Laboratories. But the pink sheet apears to be less risky and, when comparing its historical volatility, Demant AS ADR is 1.36 times less risky than Abbott Laboratories. The pink sheet trades about -0.2 of its potential returns per unit of risk. The Abbott Laboratories is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  11,585  in Abbott Laboratories on September 13, 2024 and sell it today you would lose (171.00) from holding Abbott Laboratories or give up 1.48% of portfolio value over 90 days.

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

Demant AS ADR  vs.  Abbott Laboratories

Demant AS ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Demant AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Demant AS and Abbott Laboratories

The main advantage of trading using opposite Demant AS and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Demant AS 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 Demant AS ADR 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.