Correlation Between AbbVie and Biogen
Can any of the company-specific risk be diversified away by investing in both AbbVie and Biogen 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 Biogen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AbbVie Inc and Biogen Inc, you can compare the effects of market volatilities on AbbVie and Biogen 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 Biogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and Biogen.
Diversification Opportunities for AbbVie and Biogen
Poor diversification
The 3 months correlation between AbbVie and Biogen is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of AbbVie i.e., AbbVie and Biogen go up and down completely randomly.
Pair Corralation between AbbVie and Biogen
Given the investment horizon of 90 days AbbVie Inc is expected to generate 2.34 times more return on investment than Biogen. However, AbbVie is 2.34 times more volatile than Biogen Inc. It trades about -0.06 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.45 per unit of risk. If you would invest 18,788 in AbbVie Inc on August 24, 2024 and sell it today you would lose (1,093) from holding AbbVie Inc or give up 5.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AbbVie Inc vs. Biogen Inc
Performance |
| Timeline |
| AbbVie Inc |
| Biogen Inc |
AbbVie and Biogen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AbbVie and Biogen
The main advantage of trading using opposite AbbVie and Biogen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AbbVie position performs unexpectedly, Biogen 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 Biogen will offset losses from the drop in Biogen's long position.| AbbVie vs. Merck Company | AbbVie vs. Pfizer Inc | AbbVie vs. Eli Lilly and | AbbVie vs. Bristol Myers Squibb |
| Biogen vs. Bristol Myers Squibb | Biogen vs. AbbVie Inc | Biogen vs. Merck Company | Biogen vs. Gilead Sciences |
Check out your portfolio center.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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