Correlation Between LILLY and Estee Lauder

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

By analyzing existing cross correlation between LILLY ELI 7125 and Estee Lauder Companies, you can compare the effects of market volatilities on LILLY and Estee Lauder 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 LILLY with a short position of Estee Lauder. Check out your portfolio center. Please also check ongoing floating volatility patterns of LILLY and Estee Lauder.

Diversification Opportunities for LILLY and Estee Lauder

0.02

Correlation Coefficient

LILLY  Estee Lauder

Significant diversification

The 3 months correlation between LILLY and Estee is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding LILLY ELI 7125 and Estee Lauder Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Estee Lauder Companies and 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 LILLY ELI 7125 are associated (or correlated) with Estee Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Estee Lauder Companies has no effect on the direction of LILLY i.e., LILLY and Estee Lauder go up and down completely randomly.

Pair Corralation between LILLY and Estee Lauder

Assuming the 90 days trading horizon LILLY ELI 7125 is expected to generate 0.16 times more return on investment than Estee Lauder. However, LILLY ELI 7125 is 6.39 times less risky than Estee Lauder. It trades about 0.03 of its potential returns per unit of risk. Estee Lauder Companies is currently generating about -0.08 per unit of risk. If you would invest  10,132  in LILLY ELI 7125 on September 26, 2024 and sell it today you would earn a total of  57.00  from holding LILLY ELI 7125 or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	82.93%
Values	Daily Returns

LILLY ELI 7125  vs.  Estee Lauder Companies

LILLY ELI 7125

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days LILLY ELI 7125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LILLY is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with LILLY and Estee Lauder

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

The idea behind LILLY ELI 7125 and Estee Lauder Companies 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.