Correlation Between Eli Lilly and Zai Lab

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

Diversification Opportunities for Eli Lilly and Zai Lab

-0.54

Correlation Coefficient

Eli Lilly  Zai Lab

Excellent diversification

The 3 months correlation between Eli and Zai is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Zai Lab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zai Lab 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 Zai Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zai Lab has no effect on the direction of Eli Lilly i.e., Eli Lilly and Zai Lab go up and down completely randomly.

Pair Corralation between Eli Lilly and Zai Lab

Considering the 90-day investment horizon Eli Lilly and is expected to generate 0.61 times more return on investment than Zai Lab. However, Eli Lilly and is 1.65 times less risky than Zai Lab. It trades about -0.04 of its potential returns per unit of risk. Zai Lab is currently generating about -0.04 per unit of risk. If you would invest  81,758  in Eli Lilly and on September 2, 2024 and sell it today you would lose (2,223) from holding Eli Lilly and or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eli Lilly and  vs.  Zai Lab

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.

Zai Lab

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eli Lilly and Zai Lab

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

The idea behind Eli Lilly and and Zai Lab 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.