Correlation Between Elanco Animal and AbbVie

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

By analyzing existing cross correlation between Elanco Animal Health and AbbVie Inc, you can compare the effects of market volatilities on Elanco Animal and AbbVie 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 Elanco Animal with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elanco Animal and AbbVie.

Diversification Opportunities for Elanco Animal and AbbVie

0.66

Correlation Coefficient

Elanco Animal  AbbVie

Poor diversification

The 3 months correlation between Elanco and AbbVie is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Elanco Animal 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 Elanco Animal Health are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Elanco Animal i.e., Elanco Animal and AbbVie go up and down completely randomly.

Pair Corralation between Elanco Animal and AbbVie

Given the investment horizon of 90 days Elanco Animal Health is expected to generate 4.43 times more return on investment than AbbVie. However, Elanco Animal is 4.43 times more volatile than AbbVie Inc. It trades about 0.19 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.0 per unit of risk. If you would invest  1,387  in Elanco Animal Health on February 14, 2024 and sell it today you would earn a total of  313.00  from holding Elanco Animal Health or generate 22.57% return on investment over 90 days.

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

Elanco Animal Health  vs.  AbbVie Inc

Elanco Animal Health

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elanco Animal Health are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Elanco Animal may actually be approaching a critical reversion point that can send shares even higher in June 2024.

AbbVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbbVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental drivers remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Elanco Animal and AbbVie

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

The idea behind Elanco Animal Health and AbbVie 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.