Correlation Between Alphabet and Eli Lilly

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

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

Diversification Opportunities for Alphabet and Eli Lilly

-0.31

Correlation Coefficient

Alphabet  Eli Lilly

Very good diversification

The 3 months correlation between Alphabet and Eli is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Eli Lilly go up and down completely randomly.

Pair Corralation between Alphabet and Eli Lilly

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.77 times more return on investment than Eli Lilly. However, Alphabet Inc Class C is 1.3 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 -0.07 per unit of risk. If you would invest  16,300  in Alphabet Inc Class C on October 10, 2024 and sell it today you would earn a total of  3,371  from holding Alphabet Inc Class C or generate 20.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Alphabet Inc Class C  vs.  Eli Lilly and

Alphabet Class C

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported 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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Alphabet and Eli Lilly

The main advantage of trading using opposite Alphabet and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Transaction History module to view history of all your transactions and understand their impact on performance.