Correlation Between Elanco Animal and Aurora Cannabis

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

By analyzing existing cross correlation between Elanco Animal Health and Aurora Cannabis, you can compare the effects of market volatilities on Elanco Animal and Aurora Cannabis 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 Elanco Animal with a short position of Aurora Cannabis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elanco Animal and Aurora Cannabis.

Diversification Opportunities for Elanco Animal and Aurora Cannabis

0.29

Correlation Coefficient

Elanco Animal  Aurora Cannabis

Modest diversification

The 3 months correlation between Elanco and Aurora is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and Aurora Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Cannabis and Elanco Animal 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 Elanco Animal Health are associated (or correlated) with Aurora Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Cannabis has no effect on the direction of Elanco Animal i.e., Elanco Animal and Aurora Cannabis go up and down completely randomly.

Pair Corralation between Elanco Animal and Aurora Cannabis

Given the investment horizon of 90 days Elanco Animal Health is expected to under-perform the Aurora Cannabis. But the stock apears to be less risky and, when comparing its historical volatility, Elanco Animal Health is 1.46 times less risky than Aurora Cannabis. The stock trades about -0.09 of its potential returns per unit of risk. The Aurora Cannabis is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  540.00  in Aurora Cannabis on October 8, 2024 and sell it today you would lose (70.00) from holding Aurora Cannabis or give up 12.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Elanco Animal Health  vs.  Aurora Cannabis

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health 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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Aurora Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Elanco Animal and Aurora Cannabis

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

The idea behind Elanco Animal Health and Aurora Cannabis 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.