Correlation Between United Bank and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both United Bank 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 United Bank and Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Bank and Abbott Laboratories Pakistan, you can compare the effects of market volatilities on United Bank 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 United Bank with a short position of Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Bank and Abbott Laboratories.
Diversification Opportunities for United Bank and Abbott Laboratories
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and Abbott is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding United Bank and Abbott Laboratories Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories and United Bank 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 United Bank 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 United Bank i.e., United Bank and Abbott Laboratories go up and down completely randomly.
Pair Corralation between United Bank and Abbott Laboratories
Assuming the 90 days trading horizon United Bank is expected to generate 1.53 times less return on investment than Abbott Laboratories. But when comparing it to its historical volatility, United Bank is 2.62 times less risky than Abbott Laboratories. It trades about 0.18 of its potential returns per unit of risk. Abbott Laboratories Pakistan is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 94,233 in Abbott Laboratories Pakistan on August 31, 2024 and sell it today you would earn a total of 7,900 from holding Abbott Laboratories Pakistan or generate 8.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Bank vs. Abbott Laboratories Pakistan
Performance |
| Timeline |
| United Bank |
| Abbott Laboratories |
United Bank and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Bank and Abbott Laboratories
The main advantage of trading using opposite United Bank and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Bank 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.| United Bank vs. Oil and Gas | United Bank vs. Pakistan State Oil | United Bank vs. Pakistan Petroleum | United Bank vs. Fauji Fertilizer |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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