0

I did some research on ABT. I ran a correlation across thousands of assets compared to ABT and found that ABT and VIIX had a correlation between -.53 and -.58 depending on the source.

ABT makes medical devices and VIIX is a futures etf. I don't see why these assets would be correlated at all.

  • Can't you correlate any two stocks, and won't you wind up with some number, positive or negative for any correlation you calculate? – Michael Jan 21 at 2:01
  • When you say that the two assets are correlated, what do you mean, exactly? If you mean that the prices are negatively correlated, then the explanation is very simple: ABT and VIIX are negatively correlated because ABT has risen and VIIX has fallen, and that's that. If you mean that the gains are negatively correlated, then you've found something much more interesting. – Tanner Swett Jan 21 at 2:13
  • How many data points? How long of a time period? How much have they varied? If you run 1000 correlations, you should expect 50 of them to be significant at alpha = .05 just by chance. – Acccumulation Jan 21 at 2:23
  • There's either something wrong with the time period selected or the calculation. ABT or any other large cap stock is not going to correlate with the VIX any kind of regularity. Stocks like ABT have risen fairly consistently for years with periodic corrections whereas the VIX is going to travel horizontally with occasional spikes. You might find that they correlate over a long period of time but for shorter periods, they won't. There is nothing special about ABT's price performance that is different from 100's if not 1000's of other stocks. – Bob Baerker Jan 21 at 4:15
  • Given @Svetozar Milanchev's answer, particularly the last sentence, it may be instructive if you repeated "I ran a correlation across thousands of assets compared to ABT" but this time comparing those 1000s of assets to VIIX. – TripeHound Jan 21 at 8:26
5

Your observation that those two exhibit a strong negative correlation is correct. In a nutshell, this is because ABT goes up with the market, while VIIX goes down when the market is up. A more detailed reply:

Abbott Laboratories (ABT) discovers, develops, manufactures, and sells a broad and diversified line of health care products and services. It's a growth stock, which tends to outperform the market in a positive environment and lag the market in a negative environment.

VelocityShares VIX Short Term ETN (VIIX) is an exchange traded note, whose payout is linked to the payout of a long position in CBOE' Volatility Index Future. This instrument makes money when volatility in markets increases, which happens when markets go down. Such a vehicle tends to gain rapidly and suddenly when markets crash and slowly bleed money the rest of the time. Therefore it is suited rather to protect from losses on your other investments than as a stand-alone investment (unless you expect an imminent crash).

ABT and VIX Index are in deed strongly negatively correlated (I come up with approx. -0.8), which is a "design" feature of the VIX Index. The VIX would exhibit a negative correlation to virtually any "normal" stock and the overall market.

  • "The VIIX would exhibit a negative correlation to virtually any "normal" stock"... it would be instructive to have the OP repeat "I ran a correlation across thousands of assets compared to ABT" but this time compare everything to VIIX – TripeHound Jan 21 at 8:28
  • 1
    Hmm. Out of the 2400 assets I scanned, 762 of them had a negative correlation above (below) -.40 – Mardymar Jan 21 at 14:35
  • @Svetozar What did you use to get the correlation of -.8? I used portfoliovisualizer.com/asset-correlations , which said -.58, and app.kwanti.com , which said -.53. – Mardymar Jan 21 at 14:38
  • @Mardymar: Sounds like one of you is looking at r and the other at r-squared. – Ben Voigt Jan 21 at 16:00
  • @Mardymar: i used Bloomberg Professional for the -0.8 correlation. It has used one year of adjusted closing price data to come up with -0.8. However it is more correct to run correlation on the daily returns instead of daily prices (like your portfoliovisualizer link does), which gives me a correlation of -0.59 for the daily returns of ABT and VIIX, based on adjusted prices from Yahoo finance with 1-year lookback period (Jan 22 2019 - Jan 21 2020). Please keep in mind that correlation can vary based on chosen period (max 120 days for your site) and over time. – Svetkovski Jan 22 at 1:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.