Correlation Between Disney and LILLY

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

By analyzing existing cross correlation between Walt Disney and LILLY ELI 7125, you can compare the effects of market volatilities on Disney and 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 Disney with a short position of LILLY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and LILLY.

Diversification Opportunities for Disney and LILLY

0.34

Correlation Coefficient

Disney  LILLY

Weak diversification

The 3 months correlation between Disney and LILLY is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and LILLY ELI 7125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LILLY ELI 7125 and Disney 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 Walt Disney are associated (or correlated) with LILLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LILLY ELI 7125 has no effect on the direction of Disney i.e., Disney and LILLY go up and down completely randomly.

Pair Corralation between Disney and LILLY

Considering the 90-day investment horizon Walt Disney is expected to generate 2.24 times more return on investment than LILLY. However, Disney is 2.24 times more volatile than LILLY ELI 7125. It trades about 0.31 of its potential returns per unit of risk. LILLY ELI 7125 is currently generating about 0.0 per unit of risk. If you would invest  8,865  in Walt Disney on September 5, 2024 and sell it today you would earn a total of  2,780  from holding Walt Disney or generate 31.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	68.75%
Values	Daily Returns

Walt Disney  vs.  LILLY ELI 7125

Walt Disney

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

LILLY ELI 7125

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LILLY ELI 7125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LILLY is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disney and LILLY

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

The idea behind Walt Disney and LILLY ELI 7125 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.