Correlation Between Basic Materials and AbbVie
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and AbbVie Inc, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and AbbVie.
Diversification Opportunities for Basic Materials and AbbVie
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Basic and AbbVie is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and AbbVie go up and down completely randomly.
Pair Corralation between Basic Materials and AbbVie
Assuming the 90 days trading horizon Basic Materials is expected to under-perform the AbbVie. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 1.25 times less risky than AbbVie. The index trades about -0.09 of its potential returns per unit of risk. The AbbVie Inc is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 5,278 in AbbVie Inc on February 4, 2024 and sell it today you would lose (98.00) from holding AbbVie Inc or give up 1.86% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Basic Materials vs. AbbVie Inc
Performance |
Timeline |
Basic Materials and AbbVie Volatility Contrast
Predicted Return Density |
Returns |
Basic Materials
Pair trading matchups for Basic Materials
AbbVie Inc
Pair trading matchups for AbbVie
Pair Trading with Basic Materials and AbbVie
The main advantage of trading using opposite Basic Materials and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.Basic Materials vs. Take Two Interactive Software | Basic Materials vs. Broadcom | Basic Materials vs. Apartment Investment and | Basic Materials vs. Charter Communications |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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