Correlation Between Bayer AG and Eli Lilly

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

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

Diversification Opportunities for Bayer AG and Eli Lilly

0.69

Correlation Coefficient

Bayer AG  Eli Lilly

Poor diversification

The 3 months correlation between Bayer and Eli is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Bayer AG 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 Bayer AG NA 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 Bayer AG i.e., Bayer AG and Eli Lilly go up and down completely randomly.

Pair Corralation between Bayer AG and Eli Lilly

Assuming the 90 days trading horizon Bayer AG NA is expected to under-perform the Eli Lilly. In addition to that, Bayer AG is 1.11 times more volatile than Eli Lilly and. It trades about -0.21 of its total potential returns per unit of risk. Eli Lilly and is currently generating about -0.05 per unit of volatility. If you would invest  81,450  in Eli Lilly and on September 18, 2024 and sell it today you would lose (6,510) from holding Eli Lilly and or give up 7.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Bayer AG NA  vs.  Eli Lilly and

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Eli Lilly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eli Lilly and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bayer AG and Eli Lilly

The main advantage of trading using opposite Bayer AG and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayer AG 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 Bayer AG NA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.