Correlation Between Small Cap and AbbVie
Can any of the company-specific risk be diversified away by investing in both Small Cap and AbbVie 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 Small Cap and AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and AbbVie Inc, you can compare the effects of market volatilities on Small Cap and AbbVie 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 Small Cap with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and AbbVie.
Diversification Opportunities for Small Cap and AbbVie
Excellent diversification
The 3 months correlation between Small and AbbVie is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Small Cap 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 Small Cap Core are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Small Cap i.e., Small Cap and AbbVie go up and down completely randomly.
Pair Corralation between Small Cap and AbbVie
Assuming the 90 days horizon Small Cap is expected to generate 1.04 times less return on investment than AbbVie. But when comparing it to its historical volatility, Small Cap Core is 1.14 times less risky than AbbVie. It trades about 0.08 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 13,320 in AbbVie Inc on August 24, 2024 and sell it today you would earn a total of 3,853 from holding AbbVie Inc or generate 28.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. AbbVie Inc
Performance |
| Timeline |
| Small Cap Core |
| AbbVie Inc |
Small Cap and AbbVie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and AbbVie
The main advantage of trading using opposite Small Cap and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.| Small Cap vs. Vanguard Mid Cap Index | Small Cap vs. Vanguard Total Bond | Small Cap vs. Vanguard Institutional Index | Small Cap vs. Vanguard Total International |
| AbbVie vs. Johnson Johnson | AbbVie vs. Small Cap Core | AbbVie vs. Freedom Holding Corp | AbbVie vs. Gfl Environmental Holdings |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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