Correlation Between Gilead Sciences and Eli Lilly

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

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

Diversification Opportunities for Gilead Sciences and Eli Lilly

0.73

Correlation Coefficient

Gilead Sciences  Eli Lilly

Poor diversification

The 3 months correlation between Gilead and Eli is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Gilead Sciences 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 Gilead Sciences 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 Gilead Sciences i.e., Gilead Sciences and Eli Lilly go up and down completely randomly.

Pair Corralation between Gilead Sciences and Eli Lilly

Given the investment horizon of 90 days Gilead Sciences is expected to generate 0.79 times more return on investment than Eli Lilly. However, Gilead Sciences is 1.26 times less risky than Eli Lilly. It trades about 0.18 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.05 per unit of risk. If you would invest  9,345  in Gilead Sciences on December 27, 2024 and sell it today you would earn a total of  1,768  from holding Gilead Sciences or generate 18.92% return on investment over 90 days.

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

Gilead Sciences  vs.  Eli Lilly and

Gilead Sciences

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Gilead Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Eli Lilly

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Eli Lilly may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gilead Sciences and Eli Lilly

The main advantage of trading using opposite Gilead Sciences and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gilead Sciences 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 Gilead Sciences 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.