Correlation Between Eli Lilly and Novartis
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
Pay attention - limited upside
The 3 months correlation between Eli and Novartis is -0.78. 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 1.11 times more return on investment than Novartis. However, Eli Lilly is 1.11 times more volatile than Novartis AG ADR. It trades about -0.15 of its potential returns per unit of risk. Novartis AG ADR is currently generating about -0.17 per unit of risk. If you would invest 77,286 in Eli Lilly and on January 20, 2024 and sell it today you would lose (2,691) from holding Eli Lilly and or give up 3.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eli Lilly and vs. Novartis AG ADR
Performance |
| Timeline |
| Eli Lilly |
| Novartis AG ADR |
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.| Eli Lilly vs. Alkermes Plc | Eli Lilly vs. Ironwood Pharmaceuticals | Eli Lilly vs. Deciphera Pharmaceuticals LLC | Eli Lilly vs. Eagle Pharmaceuticals |
| Novartis vs. Alkermes Plc | Novartis vs. Ironwood Pharmaceuticals | Novartis vs. Deciphera Pharmaceuticals LLC | Novartis vs. Eagle Pharmaceuticals |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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