Correlation Between Old Dominion and Elanco

Can any of the company-specific risk be diversified away by investing in both Old Dominion and Elanco 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 Old Dominion and Elanco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Old Dominion Freight and Elanco Animal Health, you can compare the effects of market volatilities on Old Dominion and Elanco 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 Old Dominion with a short position of Elanco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Dominion and Elanco.

Diversification Opportunities for Old Dominion and Elanco

-0.25

Correlation Coefficient

Old Dominion  Elanco

Very good diversification

The 3 months correlation between Old and Elanco is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health and Old Dominion 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 Old Dominion Freight are associated (or correlated) with Elanco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Old Dominion i.e., Old Dominion and Elanco go up and down completely randomly.

Pair Corralation between Old Dominion and Elanco

Given the investment horizon of 90 days Old Dominion Freight is expected to generate 2.5 times more return on investment than Elanco. However, Old Dominion is 2.5 times more volatile than Elanco Animal Health. It trades about 0.03 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.16 per unit of risk. If you would invest  19,443  in Old Dominion Freight on September 17, 2024 and sell it today you would earn a total of  626.00  from holding Old Dominion Freight or generate 3.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Old Dominion Freight  vs.  Elanco Animal Health

Old Dominion Freight

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Old Dominion Freight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Old Dominion is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Elanco Animal Health investors.

Pair Trading with Old Dominion and Elanco

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

The idea behind Old Dominion Freight and Elanco Animal Health 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.