Correlation Between Elanco Animal and TG Therapeutics

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

Diversification Opportunities for Elanco Animal and TG Therapeutics

0.57

Correlation Coefficient

Elanco Animal  TG Therapeutics

Very weak diversification

The 3 months correlation between Elanco and TGTX is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and TG Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TG Therapeutics 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 TG Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TG Therapeutics has no effect on the direction of Elanco Animal i.e., Elanco Animal and TG Therapeutics go up and down completely randomly.

Pair Corralation between Elanco Animal and TG Therapeutics

Given the investment horizon of 90 days Elanco Animal Health is expected to under-perform the TG Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Elanco Animal Health is 1.49 times less risky than TG Therapeutics. The stock trades about -0.13 of its potential returns per unit of risk. The TG Therapeutics is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,480  in TG Therapeutics on November 29, 2024 and sell it today you would lose (533.50) from holding TG Therapeutics or give up 15.33% of portfolio value over 90 days.

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

Elanco Animal Health  vs.  TG Therapeutics

Elanco Animal Health

Risk-Adjusted Performance

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 March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

TG Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days TG Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Elanco Animal and TG Therapeutics

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

The idea behind Elanco Animal Health and TG Therapeutics 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.