Correlation Between Eli Lilly and Novartis

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Can any of the company-specific risk be diversified away by investing in both Eli Lilly and Novartis 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 Eli Lilly and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eli Lilly And and Novartis AG ADR, you can compare the effects of market volatilities on Eli Lilly and Novartis 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 Eli Lilly with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eli Lilly and Novartis.

Diversification Opportunities for Eli Lilly and Novartis

-0.41
  Correlation Coefficient

Very good diversification

The 3 months correlation between Eli and Novartis is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly And and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and Eli 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 Eli Lilly And are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of Eli Lilly i.e., Eli Lilly and Novartis go up and down completely randomly.

Pair Corralation between Eli Lilly and Novartis

Considering the 90-day investment horizon Eli Lilly And is expected to generate 1.74 times more return on investment than Novartis. However, Eli Lilly is 1.74 times more volatile than Novartis AG ADR. It trades about 0.18 of its potential returns per unit of risk. Novartis AG ADR is currently generating about 0.05 per unit of risk. If you would invest  34,783  in Eli Lilly And on December 29, 2023 and sell it today you would earn a total of  42,787  from holding Eli Lilly And or generate 123.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.6%
ValuesDaily Returns

Eli Lilly And  vs.  Novartis AG ADR

 Performance 
       Timeline  
Eli Lilly And 

Risk-Adjusted Performance

23 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly And are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Eli Lilly showed solid returns over the last few months and may actually be approaching a breakup point.
Novartis AG ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Novartis is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Eli Lilly and Novartis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eli Lilly and Novartis

The main advantage of trading using opposite Eli Lilly and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.
The idea behind Eli Lilly And and Novartis AG ADR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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