Correlation Between Deciphera Pharmaceuticals and Elanco Animal

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

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

Diversification Opportunities for Deciphera Pharmaceuticals and Elanco Animal

0.65

Correlation Coefficient

Deciphera Pharmaceuticals  Elanco Animal

Poor diversification

The 3 months correlation between Deciphera and Elanco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Deciphera Pharmaceuticals LLC 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 Deciphera Pharmaceuticals 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 Deciphera Pharmaceuticals LLC 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 Deciphera Pharmaceuticals i.e., Deciphera Pharmaceuticals and Elanco Animal go up and down completely randomly.

Pair Corralation between Deciphera Pharmaceuticals and Elanco Animal

Given the investment horizon of 90 days Deciphera Pharmaceuticals is expected to generate 9.58 times less return on investment than Elanco Animal. But when comparing it to its historical volatility, Deciphera Pharmaceuticals LLC is 30.53 times less risky than Elanco Animal. It trades about 0.62 of its potential returns per unit of risk. Elanco Animal Health is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,704  in Elanco Animal Health on March 16, 2024 and sell it today you would earn a total of  103.00  from holding Elanco Animal Health or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.36%
Values	Daily Returns

Deciphera Pharmaceuticals LLC  vs.  Elanco Animal Health

Deciphera Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deciphera Pharmaceuticals LLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Deciphera Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Elanco Animal Health

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elanco Animal Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Elanco Animal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deciphera Pharmaceuticals and Elanco Animal

The main advantage of trading using opposite Deciphera Pharmaceuticals and Elanco Animal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deciphera Pharmaceuticals 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 Deciphera Pharmaceuticals LLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.