Correlation Between GlaxoSmithKline PLC and Eli Lilly

Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC and Eli Lilly 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 GlaxoSmithKline PLC and Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GlaxoSmithKline PLC ADR and Eli Lilly and, you can compare the effects of market volatilities on GlaxoSmithKline PLC and Eli Lilly 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 GlaxoSmithKline PLC with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Eli Lilly.

Diversification Opportunities for GlaxoSmithKline PLC and Eli Lilly

0.79

Correlation Coefficient

GlaxoSmithKline PLC  Eli Lilly

Poor diversification

The 3 months correlation between GlaxoSmithKline and Eli is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC ADR are associated (or correlated) with Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Eli Lilly go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Eli Lilly

Considering the 90-day investment horizon GlaxoSmithKline PLC is expected to generate 31.64 times less return on investment than Eli Lilly. But when comparing it to its historical volatility, GlaxoSmithKline PLC ADR is 1.27 times less risky than Eli Lilly. It trades about 0.0 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  29,077  in Eli Lilly and on January 26, 2024 and sell it today you would earn a total of  44,143  from holding Eli Lilly and or generate 151.81% return on investment over 90 days.

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

GlaxoSmithKline PLC ADR  vs.  Eli Lilly and

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Eli Lilly

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish essential indicators, Eli Lilly showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GlaxoSmithKline PLC and Eli Lilly

The main advantage of trading using opposite GlaxoSmithKline PLC and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC position performs unexpectedly, Eli Lilly 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 Eli Lilly will offset losses from the drop in Eli Lilly's long position.

The idea behind GlaxoSmithKline PLC ADR and Eli Lilly and 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..