Correlation Between Microsoft and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Abbott Laboratories, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Abbott Laboratories.
Diversification Opportunities for Microsoft and Abbott Laboratories
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Abbott is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Abbott Laboratories go up and down completely randomly.
Pair Corralation between Microsoft and Abbott Laboratories
Given the investment horizon of 90 days Microsoft is expected to generate 0.92 times more return on investment than Abbott Laboratories. However, Microsoft is 1.08 times less risky than Abbott Laboratories. It trades about 0.08 of its potential returns per unit of risk. Abbott Laboratories is currently generating about 0.02 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Abbott Laboratories
Performance |
| Timeline |
| Microsoft |
| Abbott Laboratories |
Microsoft and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Abbott Laboratories
The main advantage of trading using opposite Microsoft and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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