Correlation Between Eli Lilly and GMO Internet

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

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

Diversification Opportunities for Eli Lilly and GMO Internet

-0.31

Correlation Coefficient

Eli Lilly  GMO Internet

Very good diversification

The 3 months correlation between Eli and GMO is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Eli Lilly 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 Eli Lilly and are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Eli Lilly i.e., Eli Lilly and GMO Internet go up and down completely randomly.

Pair Corralation between Eli Lilly and GMO Internet

Assuming the 90 days trading horizon Eli Lilly and is expected to under-perform the GMO Internet. But the stock apears to be less risky and, when comparing its historical volatility, Eli Lilly and is 3.73 times less risky than GMO Internet. The stock trades about -0.02 of its potential returns per unit of risk. The GMO Internet is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  685.00  in GMO Internet on September 29, 2024 and sell it today you would earn a total of  925.00  from holding GMO Internet or generate 135.04% return on investment over 90 days.

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

Eli Lilly and  vs.  GMO Internet

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 very healthy basic indicators, Eli Lilly is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

GMO Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eli Lilly and GMO Internet

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

The idea behind Eli Lilly and and GMO Internet 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.