Correlation Between Dream Office and Eli Lilly

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

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

Diversification Opportunities for Dream Office and Eli Lilly

0.88

Correlation Coefficient

Dream Office  Eli Lilly

Very poor diversification

The 3 months correlation between Dream and Eli is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dream Office Real and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Dream Office 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 Dream Office Real 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 Dream Office i.e., Dream Office and Eli Lilly go up and down completely randomly.

Pair Corralation between Dream Office and Eli Lilly

Assuming the 90 days trading horizon Dream Office Real is expected to under-perform the Eli Lilly. But the stock apears to be less risky and, when comparing its historical volatility, Dream Office Real is 1.46 times less risky than Eli Lilly. The stock trades about -0.19 of its potential returns per unit of risk. The Eli Lilly and is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  3,392  in Eli Lilly and on September 26, 2024 and sell it today you would lose (428.00) from holding Eli Lilly and or give up 12.62% of portfolio value over 90 days.

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

Dream Office Real  vs.  Eli Lilly and

Dream Office Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dream Office Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Dream Office and Eli Lilly

The main advantage of trading using opposite Dream Office and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dream Office 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 Dream Office Real 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.