Correlation Between Elanco Animal and MDxHealth

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

Diversification Opportunities for Elanco Animal and MDxHealth

0.61

Correlation Coefficient

Elanco Animal  MDxHealth

Poor diversification

The 3 months correlation between Elanco and MDxHealth is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and MDxHealth SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDxHealth SA ADR 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 MDxHealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDxHealth SA ADR has no effect on the direction of Elanco Animal i.e., Elanco Animal and MDxHealth go up and down completely randomly.

Pair Corralation between Elanco Animal and MDxHealth

Given the investment horizon of 90 days Elanco Animal Health is expected to generate 0.65 times more return on investment than MDxHealth. However, Elanco Animal Health is 1.54 times less risky than MDxHealth. It trades about -0.08 of its potential returns per unit of risk. MDxHealth SA ADR is currently generating about -0.14 per unit of risk. If you would invest  1,514  in Elanco Animal Health on August 31, 2024 and sell it today you would lose (201.00) from holding Elanco Animal Health or give up 13.28% of portfolio value over 90 days.

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

Elanco Animal Health  vs.  MDxHealth SA ADR

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 latest unsteady 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.

MDxHealth SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MDxHealth SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Elanco Animal and MDxHealth

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

The idea behind Elanco Animal Health and MDxHealth SA ADR 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.