Correlation Between Micron Technology and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both Micron Technology 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 Micron Technology and Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Micron Technology and Abbott Laboratories, you can compare the effects of market volatilities on Micron Technology 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 Micron Technology with a short position of Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and Abbott Laboratories.
Diversification Opportunities for Micron Technology and Abbott Laboratories
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Micron and Abbott is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and Abbott Laboratories go up and down completely randomly.
Pair Corralation between Micron Technology and Abbott Laboratories
Assuming the 90 days trading horizon Micron Technology is expected to generate 1.83 times more return on investment than Abbott Laboratories. However, Micron Technology is 1.83 times more volatile than Abbott Laboratories. It trades about 0.07 of its potential returns per unit of risk. Abbott Laboratories is currently generating about 0.09 per unit of risk. If you would invest 6,395 in Micron Technology on September 4, 2024 and sell it today you would earn a total of 3,657 from holding Micron Technology or generate 57.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 91.97% |
| Values | Daily Returns |
Micron Technology vs. Abbott Laboratories
Performance |
| Timeline |
| Micron Technology |
| Abbott Laboratories |
Micron Technology and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micron Technology and Abbott Laboratories
The main advantage of trading using opposite Micron Technology and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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. HDFC Bank Limited | Abbott Laboratories vs. SVB Financial Group | Abbott Laboratories vs. MAHLE Metal Leve | Abbott Laboratories vs. Deutsche Bank Aktiengesellschaft |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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