Correlation Between General Electric and AbbVie

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Can any of the company-specific risk be diversified away by investing in both General Electric 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 General Electric and AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and AbbVie Inc, you can compare the effects of market volatilities on General Electric 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 General Electric with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and AbbVie.

Diversification Opportunities for General Electric and AbbVie

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between General and AbbVie is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and General Electric 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 General Electric 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 General Electric i.e., General Electric and AbbVie go up and down completely randomly.

Pair Corralation between General Electric and AbbVie

Allowing for the 90-day total investment horizon General Electric is expected to generate 7.52 times less return on investment than AbbVie. In addition to that, General Electric is 1.57 times more volatile than AbbVie Inc. It trades about 0.01 of its total potential returns per unit of risk. AbbVie Inc is currently generating about 0.08 per unit of volatility. If you would invest  9,767  in AbbVie Inc on September 2, 2022 and sell it today you would earn a total of  6,396  from holding AbbVie Inc or generate 65.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  AbbVie Inc

 Performance (%) 
       Timeline  
General Electric 
General Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Price Channel

AbbVie Inc 
AbbVie Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, AbbVie showed solid returns over the last few months and may actually be approaching a breakup point.

AbbVie Price Channel

General Electric and AbbVie Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and AbbVie

The main advantage of trading using opposite General Electric and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.
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The idea behind General Electric and AbbVie Inc 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.
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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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