Correlation Between HE Equipment and LILLY

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

By analyzing existing cross correlation between HE Equipment Services and LILLY ELI 7125, you can compare the effects of market volatilities on HE Equipment and 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 HE Equipment with a short position of LILLY. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and LILLY.

Diversification Opportunities for HE Equipment and LILLY

-0.3

Correlation Coefficient

HE Equipment  LILLY

Very good diversification

The 3 months correlation between HEES and LILLY is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and LILLY ELI 7125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LILLY ELI 7125 and HE Equipment 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 HE Equipment Services are associated (or correlated) with LILLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LILLY ELI 7125 has no effect on the direction of HE Equipment i.e., HE Equipment and LILLY go up and down completely randomly.

Pair Corralation between HE Equipment and LILLY

Given the investment horizon of 90 days HE Equipment Services is expected to generate 4.82 times more return on investment than LILLY. However, HE Equipment is 4.82 times more volatile than LILLY ELI 7125. It trades about 0.05 of its potential returns per unit of risk. LILLY ELI 7125 is currently generating about 0.01 per unit of risk. If you would invest  4,371  in HE Equipment Services on September 26, 2024 and sell it today you would earn a total of  650.00  from holding HE Equipment Services or generate 14.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.2%
Values	Daily Returns

HE Equipment Services  vs.  LILLY ELI 7125

HE Equipment Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, HE Equipment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LILLY ELI 7125

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LILLY ELI 7125 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LILLY is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HE Equipment and LILLY

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

The idea behind HE Equipment Services and LILLY ELI 7125 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.