Correlation Between Teva Pharma and Elanco Animal

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

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

Diversification Opportunities for Teva Pharma and Elanco Animal

-0.18

Correlation Coefficient

Teva Pharma  Elanco Animal

Good diversification

The 3 months correlation between Teva and Elanco is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries 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 Teva Pharma 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 Teva Pharma Industries are associated (or correlated) with Elanco Animal. 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 Teva Pharma i.e., Teva Pharma and Elanco Animal go up and down completely randomly.

Pair Corralation between Teva Pharma and Elanco Animal

Given the investment horizon of 90 days Teva Pharma Industries is expected to generate 0.81 times more return on investment than Elanco Animal. However, Teva Pharma Industries is 1.24 times less risky than Elanco Animal. It trades about 0.01 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.22 per unit of risk. If you would invest  1,649  in Teva Pharma Industries on September 17, 2024 and sell it today you would earn a total of  1.00  from holding Teva Pharma Industries or generate 0.06% return on investment over 90 days.

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

Teva Pharma Industries  vs.  Elanco Animal Health

Teva Pharma Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teva Pharma Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Teva Pharma and Elanco Animal

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

The idea behind Teva Pharma Industries 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.