Correlation Between Abbott Laboratories and Zimmer Biomet

Can any of the company-specific risk be diversified away by investing in both Abbott Laboratories and Zimmer Biomet 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 Abbott Laboratories and Zimmer Biomet into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Abbott Laboratories and Zimmer Biomet Holdings, you can compare the effects of market volatilities on Abbott Laboratories and Zimmer Biomet 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 Abbott Laboratories with a short position of Zimmer Biomet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abbott Laboratories and Zimmer Biomet.

Diversification Opportunities for Abbott Laboratories and Zimmer Biomet

0.16

Correlation Coefficient

Abbott Laboratories  Zimmer Biomet

Average diversification

The 3 months correlation between Abbott and Zimmer is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings and Abbott Laboratories 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 Abbott Laboratories are associated (or correlated) with Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Abbott Laboratories i.e., Abbott Laboratories and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Zimmer Biomet

Considering the 90-day investment horizon Abbott Laboratories is expected to under-perform the Zimmer Biomet. But the stock apears to be less risky and, when comparing its historical volatility, Abbott Laboratories is 1.19 times less risky than Zimmer Biomet. The stock trades about -0.24 of its potential returns per unit of risk. The Zimmer Biomet Holdings is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  12,642  in Zimmer Biomet Holdings on January 19, 2024 and sell it today you would lose (512.00) from holding Zimmer Biomet Holdings or give up 4.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Abbott Laboratories  vs.  Zimmer Biomet Holdings

Abbott Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abbott Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Zimmer Biomet Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zimmer Biomet Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Zimmer Biomet is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Abbott Laboratories and Zimmer Biomet

The main advantage of trading using opposite Abbott Laboratories and Zimmer Biomet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Abbott Laboratories position performs unexpectedly, Zimmer Biomet 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 Zimmer Biomet will offset losses from the drop in Zimmer Biomet's long position.

The idea behind Abbott Laboratories and Zimmer Biomet Holdings 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.

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.