Correlation Between Eli Lilly and Alphabet
Can any of the company-specific risk be diversified away by investing in both Eli Lilly and Alphabet 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 Alphabet 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 Alphabet Inc Class C, you can compare the effects of market volatilities on Eli Lilly and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eli Lilly and Alphabet.
Diversification Opportunities for Eli Lilly and Alphabet
Good diversification
The 3 months correlation between Eli and Alphabet is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of Eli Lilly i.e., Eli Lilly and Alphabet go up and down completely randomly.
Pair Corralation between Eli Lilly and Alphabet
Considering the 90-day investment horizon Eli Lilly and is expected to generate 0.96 times more return on investment than Alphabet. However, Eli Lilly and is 1.04 times less risky than Alphabet. It trades about 0.13 of its potential returns per unit of risk. Alphabet Inc Class C is currently generating about 0.07 per unit of risk. If you would invest 57,458 in Eli Lilly and on January 19, 2024 and sell it today you would earn a total of 17,619 from holding Eli Lilly and or generate 30.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eli Lilly and vs. Alphabet Inc Class C
Performance |
| Timeline |
| Eli Lilly |
| Alphabet Class C |
Eli Lilly and Alphabet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eli Lilly and Alphabet
The main advantage of trading using opposite Eli Lilly and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.The idea behind Eli Lilly and and Alphabet Inc Class C 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.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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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