Correlation Between Eli Lilly and NVIDIA

Can any of the company-specific risk be diversified away by investing in both Eli Lilly and NVIDIA 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 NVIDIA 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 NVIDIA, you can compare the effects of market volatilities on Eli Lilly and NVIDIA 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 NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eli Lilly and NVIDIA.

Diversification Opportunities for Eli Lilly and NVIDIA

-0.31

Correlation Coefficient

Eli Lilly  NVIDIA

Very good diversification

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

Pair Corralation between Eli Lilly and NVIDIA

Assuming the 90 days trading horizon Eli Lilly and is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Eli Lilly and is 1.5 times less risky than NVIDIA. The stock trades about -0.01 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  271,977  in NVIDIA on October 11, 2024 and sell it today you would earn a total of  13,796  from holding NVIDIA or generate 5.07% 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.  NVIDIA

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 weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Eli Lilly and NVIDIA

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

The idea behind Eli Lilly and and NVIDIA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..