Correlation Between Eli Lilly and Bluebird Bio

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

Diversification Opportunities for Eli Lilly and Bluebird Bio

0.72

Correlation Coefficient

Eli Lilly  Bluebird Bio

Poor diversification

The 3 months correlation between Eli and Bluebird is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Bluebird bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluebird bio 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 Bluebird Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bluebird bio has no effect on the direction of Eli Lilly i.e., Eli Lilly and Bluebird Bio go up and down completely randomly.

Pair Corralation between Eli Lilly and Bluebird Bio

Considering the 90-day investment horizon Eli Lilly and is expected to under-perform the Bluebird Bio. But the stock apears to be less risky and, when comparing its historical volatility, Eli Lilly and is 8.2 times less risky than Bluebird Bio. The stock trades about -0.12 of its potential returns per unit of risk. The Bluebird bio is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  57.00  in Bluebird bio on September 12, 2024 and sell it today you would lose (18.00) from holding Bluebird bio or give up 31.58% of portfolio value over 90 days.

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

Eli Lilly and  vs.  Bluebird bio

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 sluggish performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bluebird bio

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bluebird bio are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bluebird Bio exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eli Lilly and Bluebird Bio

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

The idea behind Eli Lilly and and Bluebird bio 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.