Correlation Between Novartis and Eli Lilly
Can any of the company-specific risk be diversified away by investing in both Novartis 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 Novartis and Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG ADR and Eli Lilly and, you can compare the effects of market volatilities on Novartis 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 Novartis with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Eli Lilly.
Diversification Opportunities for Novartis and Eli Lilly
Significant diversification
The 3 months correlation between Novartis and Eli is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG 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 Novartis 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 Novartis AG 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 Novartis i.e., Novartis and Eli Lilly go up and down completely randomly.
Pair Corralation between Novartis and Eli Lilly
Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.55 times more return on investment than Eli Lilly. However, Novartis AG ADR is 1.8 times less risky than Eli Lilly. It trades about 0.09 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.04 per unit of risk. If you would invest 9,683 in Novartis AG ADR on February 12, 2024 and sell it today you would earn a total of 527.00 from holding Novartis AG ADR or generate 5.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG ADR vs. Eli Lilly and
Performance |
| Timeline |
| Novartis AG ADR |
| Eli Lilly |
Novartis and Eli Lilly Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Eli Lilly
The main advantage of trading using opposite Novartis and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis 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.| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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