Correlation Between North American and Eli Lilly

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

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

Diversification Opportunities for North American and Eli Lilly

-0.82

Correlation Coefficient

North American  Eli Lilly

Pay attention - limited upside

The 3 months correlation between North and Eli is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and North American 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 North American Financial 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 North American i.e., North American and Eli Lilly go up and down completely randomly.

Pair Corralation between North American and Eli Lilly

Assuming the 90 days trading horizon North American Financial is expected to under-perform the Eli Lilly. In addition to that, North American is 1.05 times more volatile than Eli Lilly and. It trades about -0.19 of its total potential returns per unit of risk. Eli Lilly and is currently generating about 0.06 per unit of volatility. If you would invest  2,808  in Eli Lilly and on September 24, 2024 and sell it today you would earn a total of  50.00  from holding Eli Lilly and or generate 1.78% return on investment over 90 days.

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

North American Financial  vs.  Eli Lilly and

North American Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

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 abnormal 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.

Pair Trading with North American and Eli Lilly

The main advantage of trading using opposite North American and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Financial 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.