Correlation Between Eli Lilly and Ross Stores

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

Diversification Opportunities for Eli Lilly and Ross Stores

-0.81

Correlation Coefficient

Eli Lilly  Ross Stores

Pay attention - limited upside

The 3 months correlation between Eli and Ross is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Eli Lilly i.e., Eli Lilly and Ross Stores go up and down completely randomly.

Pair Corralation between Eli Lilly and Ross Stores

Assuming the 90 days trading horizon Eli Lilly is expected to generate 1.87 times less return on investment than Ross Stores. But when comparing it to its historical volatility, Eli Lilly and is 1.15 times less risky than Ross Stores. It trades about 0.1 of its potential returns per unit of risk. Ross Stores is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  187,182  in Ross Stores on October 4, 2024 and sell it today you would earn a total of  126,218  from holding Ross Stores or generate 67.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	34.5%
Values	Daily Returns

Eli Lilly and  vs.  Ross Stores

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

Ross Stores

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ross Stores showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eli Lilly and Ross Stores

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

The idea behind Eli Lilly and and Ross Stores 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.