Correlation Between Eli Lilly and GlaxoSmithKline PLC

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

Diversification Opportunities for Eli Lilly and GlaxoSmithKline PLC

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Eli and GlaxoSmithKline is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly And and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Eli Lilly i.e., Eli Lilly and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Eli Lilly and GlaxoSmithKline PLC

Considering the 90-day investment horizon Eli Lilly And is expected to generate 1.71 times more return on investment than GlaxoSmithKline PLC. However, Eli Lilly is 1.71 times more volatile than GlaxoSmithKline PLC ADR. It trades about 0.06 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about 0.06 per unit of risk. If you would invest  76,500  in Eli Lilly And on December 29, 2023 and sell it today you would earn a total of  1,296  from holding Eli Lilly And or generate 1.69% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Eli Lilly And  vs.  GlaxoSmithKline PLC ADR

 Performance 
       Timeline  
Eli Lilly And 

Risk-Adjusted Performance

22 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly And are ranked lower than 22 (%) 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.
GlaxoSmithKline PLC ADR 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, GlaxoSmithKline PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Eli Lilly and GlaxoSmithKline PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eli Lilly and GlaxoSmithKline PLC

The main advantage of trading using opposite Eli Lilly and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly position performs unexpectedly, GlaxoSmithKline PLC 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 GlaxoSmithKline PLC will offset losses from the drop in GlaxoSmithKline PLC's long position.
The idea behind Eli Lilly And and GlaxoSmithKline PLC 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.
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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