Correlation Between TRAVEL + and AbbVie

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and AbbVie Inc, you can compare the effects of market volatilities on TRAVEL + 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 TRAVEL + with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL + and AbbVie.

Diversification Opportunities for TRAVEL + and AbbVie

-0.35

Correlation Coefficient

TRAVEL +  AbbVie

Very good diversification

The 3 months correlation between TRAVEL and AbbVie is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and TRAVEL + 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 TRAVEL LEISURE DL 01 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 TRAVEL + i.e., TRAVEL + and AbbVie go up and down completely randomly.

Pair Corralation between TRAVEL + and AbbVie

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to generate 1.3 times more return on investment than AbbVie. However, TRAVEL + is 1.3 times more volatile than AbbVie Inc. It trades about 0.06 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.03 per unit of risk. If you would invest  3,283  in TRAVEL LEISURE DL 01 on September 4, 2024 and sell it today you would earn a total of  1,967  from holding TRAVEL LEISURE DL 01 or generate 59.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

TRAVEL LEISURE DL 01  vs.  AbbVie Inc

TRAVEL LEISURE DL

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, TRAVEL + reported solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TRAVEL + and AbbVie

The main advantage of trading using opposite TRAVEL + and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL + 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 TRAVEL LEISURE DL 01 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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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.