Correlation Between Eli Lilly and SAB Biotherapeutics

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

Diversification Opportunities for Eli Lilly and SAB Biotherapeutics

-0.66

Correlation Coefficient

Eli Lilly  SAB Biotherapeutics

Excellent diversification

The 3 months correlation between Eli and SAB is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and SAB Biotherapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAB Biotherapeutics 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 SAB Biotherapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAB Biotherapeutics has no effect on the direction of Eli Lilly i.e., Eli Lilly and SAB Biotherapeutics go up and down completely randomly.

Pair Corralation between Eli Lilly and SAB Biotherapeutics

Considering the 90-day investment horizon Eli Lilly is expected to generate 2.03 times less return on investment than SAB Biotherapeutics. But when comparing it to its historical volatility, Eli Lilly and is 10.53 times less risky than SAB Biotherapeutics. It trades about 0.04 of its potential returns per unit of risk. SAB Biotherapeutics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9.00  in SAB Biotherapeutics on December 26, 2024 and sell it today you would lose (6.31) from holding SAB Biotherapeutics or give up 70.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.8%
Values	Daily Returns

Eli Lilly and  vs.  SAB Biotherapeutics

Eli Lilly

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Eli Lilly is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

SAB Biotherapeutics

Risk-Adjusted Performance

Weak

Over the last 90 days SAB Biotherapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly uncertain basic indicators, SAB Biotherapeutics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Eli Lilly and SAB Biotherapeutics

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

The idea behind Eli Lilly and and SAB Biotherapeutics 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.