Correlation Between General Electric and Abbott Laboratories

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

Diversification Opportunities for General Electric and Abbott Laboratories

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between General and Abbott is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories 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 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 General Electric i.e., General Electric and Abbott Laboratories go up and down completely randomly.

Pair Corralation between General Electric and Abbott Laboratories

Allowing for the 90-day total investment horizon General Electric is expected to under-perform the Abbott Laboratories. In addition to that, General Electric is 1.16 times more volatile than Abbott Laboratories. It trades about -0.14 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about 0.12 per unit of volatility. If you would invest  10,423  in Abbott Laboratories on September 11, 2022 and sell it today you would earn a total of  328.00  from holding Abbott Laboratories or generate 3.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Abbott Laboratories

 Performance (%) 
       Timeline  
General Electric 
General Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in January 2023.

General Price Channel

Abbott Laboratories 
Abbott Performance
0 of 100
Over the last 90 days Abbott Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Abbott Laboratories is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Abbott Price Channel

General Electric and Abbott Laboratories Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Abbott Laboratories

The main advantage of trading using opposite General Electric and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.
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The idea behind General Electric 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.
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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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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