Correlation Between Western Investment and Eli Lilly

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

By analyzing existing cross correlation between Western Investment and Eli Lilly and, you can compare the effects of market volatilities on Western Investment and Eli Lilly 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 Western Investment with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Investment and Eli Lilly.

Diversification Opportunities for Western Investment and Eli Lilly

-0.21

Correlation Coefficient

Western Investment  Eli Lilly

Very good diversification

The 3 months correlation between Western and Eli is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Western Investment 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 Western Investment are associated (or correlated) with Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of Western Investment i.e., Western Investment and Eli Lilly go up and down completely randomly.

Pair Corralation between Western Investment and Eli Lilly

Given the investment horizon of 90 days Western Investment is expected to generate 2.15 times more return on investment than Eli Lilly. However, Western Investment is 2.15 times more volatile than Eli Lilly and. It trades about 0.36 of its potential returns per unit of risk. Eli Lilly and is currently generating about -0.03 per unit of risk. If you would invest  44.00  in Western Investment on September 29, 2024 and sell it today you would earn a total of  11.00  from holding Western Investment or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Western Investment  vs.  Eli Lilly and

Western Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Eli Lilly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eli Lilly and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal 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 Western Investment and Eli Lilly

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

The idea behind Western Investment and Eli Lilly and 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.