Correlation Between AbbVie and AstraZeneca PLC

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Can any of the company-specific risk be diversified away by investing in both AbbVie and AstraZeneca PLC 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 AbbVie and AstraZeneca PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AbbVie Inc and AstraZeneca PLC ADR, you can compare the effects of market volatilities on AbbVie and AstraZeneca PLC 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 AbbVie with a short position of AstraZeneca PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and AstraZeneca PLC.

Diversification Opportunities for AbbVie and AstraZeneca PLC

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between AbbVie and AstraZeneca is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and AstraZeneca PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC ADR and AbbVie 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 AbbVie Inc are associated (or correlated) with AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC ADR has no effect on the direction of AbbVie i.e., AbbVie and AstraZeneca PLC go up and down completely randomly.

Pair Corralation between AbbVie and AstraZeneca PLC

Given the investment horizon of 90 days AbbVie Inc is expected to generate 1.14 times more return on investment than AstraZeneca PLC. However, AbbVie is 1.14 times more volatile than AstraZeneca PLC ADR. It trades about 0.19 of its potential returns per unit of risk. AstraZeneca PLC ADR is currently generating about 0.2 per unit of risk. If you would invest  16,473  in AbbVie Inc on November 18, 2024 and sell it today you would earn a total of  2,814  from holding AbbVie Inc or generate 17.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

AbbVie Inc  vs.  AstraZeneca PLC ADR

 Performance 
       Timeline  
AbbVie Inc 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, AbbVie showed solid returns over the last few months and may actually be approaching a breakup point.
AstraZeneca PLC ADR 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in AstraZeneca PLC ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, AstraZeneca PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

AbbVie and AstraZeneca PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AbbVie and AstraZeneca PLC

The main advantage of trading using opposite AbbVie and AstraZeneca PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AbbVie position performs unexpectedly, AstraZeneca PLC 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 AstraZeneca PLC will offset losses from the drop in AstraZeneca PLC's long position.
The idea behind AbbVie Inc and AstraZeneca PLC ADR 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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