Correlation Between Capital One and Eli Lilly

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

By analyzing existing cross correlation between Capital One Financial and Eli Lilly and, you can compare the effects of market volatilities on Capital One and Eli 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 Capital One with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Eli Lilly.

Diversification Opportunities for Capital One and Eli Lilly

-0.75

Correlation Coefficient

Capital One  Eli Lilly

Pay attention - limited upside

The 3 months correlation between Capital and Eli is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Capital One 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 Capital One Financial are associated (or correlated) with Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of Capital One i.e., Capital One and Eli Lilly go up and down completely randomly.

Pair Corralation between Capital One and Eli Lilly

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.93 times more return on investment than Eli Lilly. However, Capital One Financial is 1.07 times less risky than Eli Lilly. It trades about 0.16 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.02 per unit of risk. If you would invest  327,334  in Capital One Financial on October 6, 2024 and sell it today you would earn a total of  52,118  from holding Capital One Financial or generate 15.92% return on investment over 90 days.

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

Capital One Financial  vs.  Eli Lilly and

Capital One Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

Eli Lilly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eli Lilly and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Eli Lilly is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital One and Eli Lilly

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

The idea behind Capital One Financial and Eli Lilly and 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 Transaction History module to view history of all your transactions and understand their impact on performance.