Correlation Between Ford and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Abbott Laboratories, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Abbott Laboratories.
Diversification Opportunities for Ford and Abbott Laboratories
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Abbott is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Ford 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 Ford Motor 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 Ford i.e., Ford and Abbott Laboratories go up and down completely randomly.
Pair Corralation between Ford and Abbott Laboratories
Taking into account the 90-day investment horizon Ford is expected to generate 1.58 times less return on investment than Abbott Laboratories. In addition to that, Ford is 1.47 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 0.02 per unit of volatility. If you would invest 209,977 in Abbott Laboratories on September 2, 2024 and sell it today you would earn a total of 26,023 from holding Abbott Laboratories or generate 12.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Abbott Laboratories
Performance |
| Timeline |
| Ford Motor |
| Abbott Laboratories |
Ford and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Abbott Laboratories
The main advantage of trading using opposite Ford and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Abbott Laboratories vs. Grupo Sports World | Abbott Laboratories vs. Hoteles City Express | Abbott Laboratories vs. United Airlines Holdings | Abbott Laboratories vs. Ameriprise Financial |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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