Correlation Between Avadel Pharmaceuticals and LILLY

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

By analyzing existing cross correlation between Avadel Pharmaceuticals PLC and LILLY ELI 7125, you can compare the effects of market volatilities on Avadel Pharmaceuticals and LILLY 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 Avadel Pharmaceuticals with a short position of LILLY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avadel Pharmaceuticals and LILLY.

Diversification Opportunities for Avadel Pharmaceuticals and LILLY

-0.23

Correlation Coefficient

Avadel Pharmaceuticals  LILLY

Very good diversification

The 3 months correlation between Avadel and LILLY is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and LILLY ELI 7125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LILLY ELI 7125 and Avadel Pharmaceuticals 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 Avadel Pharmaceuticals PLC are associated (or correlated) with LILLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LILLY ELI 7125 has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and LILLY go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and LILLY

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the LILLY. In addition to that, Avadel Pharmaceuticals is 6.52 times more volatile than LILLY ELI 7125. It trades about -0.05 of its total potential returns per unit of risk. LILLY ELI 7125 is currently generating about 0.01 per unit of volatility. If you would invest  10,224  in LILLY ELI 7125 on September 26, 2024 and sell it today you would earn a total of  58.00  from holding LILLY ELI 7125 or generate 0.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.2%
Values	Daily Returns

Avadel Pharmaceuticals PLC  vs.  LILLY ELI 7125

Avadel Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avadel Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

LILLY ELI 7125

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LILLY ELI 7125 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LILLY is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Avadel Pharmaceuticals and LILLY

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

The idea behind Avadel Pharmaceuticals PLC and LILLY ELI 7125 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.