Correlation Between Eli Lilly and Biogen

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

Diversification Opportunities for Eli Lilly and Biogen

-0.63

Correlation Coefficient

Eli Lilly  Biogen

Excellent diversification

The 3 months correlation between Eli and Biogen is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Eli Lilly i.e., Eli Lilly and Biogen go up and down completely randomly.

Pair Corralation between Eli Lilly and Biogen

Considering the 90-day investment horizon Eli Lilly and is expected to generate 0.87 times more return on investment than Biogen. However, Eli Lilly and is 1.15 times less risky than Biogen. It trades about -0.22 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.38 per unit of risk. If you would invest  77,314  in Eli Lilly and on January 24, 2024 and sell it today you would lose (4,181) from holding Eli Lilly and or give up 5.41% 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.  Biogen Inc

Eli Lilly

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 11 (%) 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.

Biogen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Eli Lilly and Biogen

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

The idea behind Eli Lilly and and Biogen Inc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.