Correlation Between Verona Pharma and Elanco Animal

Can any of the company-specific risk be diversified away by investing in both Verona 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 Verona 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 Verona Pharma PLC and Elanco Animal Health, you can compare the effects of market volatilities on Verona 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 Verona Pharma with a short position of Elanco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verona Pharma and Elanco Animal.

Diversification Opportunities for Verona Pharma and Elanco Animal

-0.7

Correlation Coefficient

Verona Pharma  Elanco Animal

Excellent diversification

The 3 months correlation between Verona and Elanco is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC 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 Verona 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 Verona Pharma PLC 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 Verona Pharma i.e., Verona Pharma and Elanco Animal go up and down completely randomly.

Pair Corralation between Verona Pharma and Elanco Animal

Given the investment horizon of 90 days Verona Pharma PLC is expected to generate 1.77 times more return on investment than Elanco Animal. However, Verona Pharma is 1.77 times more volatile than Elanco Animal Health. It trades about 0.15 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.08 per unit of risk. If you would invest  4,702  in Verona Pharma PLC on December 28, 2024 and sell it today you would earn a total of  1,598  from holding Verona Pharma PLC or generate 33.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Verona Pharma PLC  vs.  Elanco Animal Health

Verona Pharma PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Elanco Animal Health

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Verona Pharma and Elanco Animal

The main advantage of trading using opposite Verona Pharma and Elanco Animal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verona 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 Verona Pharma PLC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.