Correlation Between Berkshire Hathaway and AbbVie

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

By analyzing existing cross correlation between Berkshire Hathaway and AbbVie Inc, you can compare the effects of market volatilities on Berkshire Hathaway 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 Berkshire Hathaway with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and AbbVie.

Diversification Opportunities for Berkshire Hathaway and AbbVie

-0.37

Correlation Coefficient

Berkshire Hathaway  AbbVie

Very good diversification

The 3 months correlation between Berkshire and AbbVie is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and AbbVie go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and AbbVie

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 0.58 times more return on investment than AbbVie. However, Berkshire Hathaway is 1.73 times less risky than AbbVie. It trades about 0.08 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.0 per unit of risk. If you would invest  43,300  in Berkshire Hathaway on September 1, 2024 and sell it today you would earn a total of  2,630  from holding Berkshire Hathaway or generate 6.07% return on investment over 90 days.

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

Berkshire Hathaway  vs.  AbbVie Inc

Berkshire Hathaway

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

AbbVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbbVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AbbVie is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Berkshire Hathaway and AbbVie

The main advantage of trading using opposite Berkshire Hathaway and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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.

The idea behind Berkshire Hathaway 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.