Correlation Between Zimmer Biomet and Abbott Laboratories

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

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

Diversification Opportunities for Zimmer Biomet and Abbott Laboratories

0.79

Correlation Coefficient

Zimmer Biomet  Abbott Laboratories

Poor diversification

The 3 months correlation between Zimmer and Abbott is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Zimmer Biomet Holdings and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Zimmer Biomet 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 Zimmer Biomet Holdings 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 Zimmer Biomet i.e., Zimmer Biomet and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Zimmer Biomet and Abbott Laboratories

Assuming the 90 days horizon Zimmer Biomet is expected to generate 5.93 times less return on investment than Abbott Laboratories. In addition to that, Zimmer Biomet is 1.33 times more volatile than Abbott Laboratories. It trades about 0.01 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about 0.08 per unit of volatility. If you would invest  9,748  in Abbott Laboratories on September 23, 2024 and sell it today you would earn a total of  1,218  from holding Abbott Laboratories or generate 12.49% return on investment over 90 days.

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

Zimmer Biomet Holdings  vs.  Abbott Laboratories

Zimmer Biomet Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Abbott Laboratories

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zimmer Biomet and Abbott Laboratories

The main advantage of trading using opposite Zimmer Biomet and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zimmer Biomet 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 Zimmer Biomet Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.