Correlation Between China SXT and Elanco Animal

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

By analyzing existing cross correlation between China SXT Pharmaceuticals and Elanco Animal Health, you can compare the effects of market volatilities on China SXT 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 China SXT with a short position of Elanco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of China SXT and Elanco Animal.

Diversification Opportunities for China SXT and Elanco Animal

0.36

Correlation Coefficient

China SXT  Elanco Animal

Weak diversification

The 3 months correlation between China and Elanco is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding China SXT Pharmaceuticals 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 China SXT 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 China SXT Pharmaceuticals 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 China SXT i.e., China SXT and Elanco Animal go up and down completely randomly.

Pair Corralation between China SXT and Elanco Animal

Given the investment horizon of 90 days China SXT Pharmaceuticals is expected to under-perform the Elanco Animal. In addition to that, China SXT is 1.52 times more volatile than Elanco Animal Health. It trades about -0.36 of its total potential returns per unit of risk. Elanco Animal Health is currently generating about 0.12 per unit of volatility. If you would invest  1,251  in Elanco Animal Health on August 28, 2024 and sell it today you would earn a total of  88.00  from holding Elanco Animal Health or generate 7.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

China SXT Pharmaceuticals  vs.  Elanco Animal Health

China SXT Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China SXT Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

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 China SXT and Elanco Animal

The main advantage of trading using opposite China SXT and Elanco Animal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China SXT 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 China SXT Pharmaceuticals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.