Correlation Between LILLY and HE Equipment

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

Diversification Opportunities for LILLY and HE Equipment

-0.19

Correlation Coefficient

LILLY  HE Equipment

Good diversification

The 3 months correlation between LILLY and HEES is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding LILLY ELI 7125 and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of LILLY i.e., LILLY and HE Equipment go up and down completely randomly.

Pair Corralation between LILLY and HE Equipment

Assuming the 90 days trading horizon LILLY ELI 7125 is expected to under-perform the HE Equipment. But the bond apears to be less risky and, when comparing its historical volatility, LILLY ELI 7125 is 3.51 times less risky than HE Equipment. The bond trades about -0.01 of its potential returns per unit of risk. The HE Equipment Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,337  in HE Equipment Services on September 25, 2024 and sell it today you would earn a total of  684.00  from holding HE Equipment Services or generate 15.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.46%
Values	Daily Returns

LILLY ELI 7125  vs.  HE Equipment Services

LILLY ELI 7125

Risk-Adjusted Performance

0 of 100

Very Weak

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 newest stock price disturbance, may contribute to short-term losses for the investors.

HE Equipment Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, HE Equipment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with LILLY and HE Equipment

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

The idea behind LILLY ELI 7125 and HE Equipment Services 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.