Correlation Between Eli Lilly and Biohaven Pharmaceutical

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

Diversification Opportunities for Eli Lilly and Biohaven Pharmaceutical

EliBiohavenDiversified AwayEliBiohavenDiversified Away100%
0.12
  Correlation Coefficient

Average diversification

The 3 months correlation between Eli and Biohaven is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Biohaven Pharmaceutical Holdin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biohaven Pharmaceutical 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 Biohaven Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biohaven Pharmaceutical has no effect on the direction of Eli Lilly i.e., Eli Lilly and Biohaven Pharmaceutical go up and down completely randomly.

Pair Corralation between Eli Lilly and Biohaven Pharmaceutical

Considering the 90-day investment horizon Eli Lilly and is expected to generate 0.49 times more return on investment than Biohaven Pharmaceutical. However, Eli Lilly and is 2.06 times less risky than Biohaven Pharmaceutical. It trades about 0.44 of its potential returns per unit of risk. Biohaven Pharmaceutical Holding is currently generating about 0.09 per unit of risk. If you would invest  74,107  in Eli Lilly and on November 20, 2024 and sell it today you would earn a total of  11,465  from holding Eli Lilly and or generate 15.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Eli Lilly and  vs.  Biohaven Pharmaceutical Holdin

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-20-100
JavaScript chart by amCharts 3.21.15LLY BHVN
       Timeline  
Eli Lilly 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish essential indicators, Eli Lilly showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb750800850
Biohaven Pharmaceutical 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Biohaven Pharmaceutical Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb3436384042444648

Eli Lilly and Biohaven Pharmaceutical Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.35-4.76-3.16-1.570.01.563.174.796.48.02 0.020.040.060.080.10
JavaScript chart by amCharts 3.21.15LLY BHVN
       Returns  

Pair Trading with Eli Lilly and Biohaven Pharmaceutical

The main advantage of trading using opposite Eli Lilly and Biohaven Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly position performs unexpectedly, Biohaven Pharmaceutical 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 Biohaven Pharmaceutical will offset losses from the drop in Biohaven Pharmaceutical's long position.
The idea behind Eli Lilly and and Biohaven Pharmaceutical Holding 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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