Correlation Between Elanco Animal and Aion Therapeutic

Can any of the company-specific risk be diversified away by investing in both Elanco Animal and Aion Therapeutic 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 Aion Therapeutic 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 Aion Therapeutic, you can compare the effects of market volatilities on Elanco Animal and Aion Therapeutic 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 Aion Therapeutic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elanco Animal and Aion Therapeutic.

Diversification Opportunities for Elanco Animal and Aion Therapeutic

0.04

Correlation Coefficient

Elanco Animal  Aion Therapeutic

Significant diversification

The 3 months correlation between Elanco and Aion is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and Aion Therapeutic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aion Therapeutic 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 Aion Therapeutic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aion Therapeutic has no effect on the direction of Elanco Animal i.e., Elanco Animal and Aion Therapeutic go up and down completely randomly.

Pair Corralation between Elanco Animal and Aion Therapeutic

Given the investment horizon of 90 days Elanco Animal Health is expected to under-perform the Aion Therapeutic. But the stock apears to be less risky and, when comparing its historical volatility, Elanco Animal Health is 34.52 times less risky than Aion Therapeutic. The stock trades about -0.01 of its potential returns per unit of risk. The Aion Therapeutic is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1.13  in Aion Therapeutic on October 23, 2024 and sell it today you would lose (0.03) from holding Aion Therapeutic or give up 2.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Elanco Animal Health  vs.  Aion Therapeutic

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 very healthy basic indicators, Elanco Animal is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Aion Therapeutic

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aion Therapeutic are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Aion Therapeutic reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elanco Animal and Aion Therapeutic

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

The idea behind Elanco Animal Health and Aion Therapeutic 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.