Correlation Between Elanco Animal and Collegium Pharmaceutical

Can any of the company-specific risk be diversified away by investing in both Elanco Animal and Collegium Pharmaceutical 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 Collegium Pharmaceutical 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 Collegium Pharmaceutical, you can compare the effects of market volatilities on Elanco Animal and Collegium Pharmaceutical 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 Collegium Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elanco Animal and Collegium Pharmaceutical.

Diversification Opportunities for Elanco Animal and Collegium Pharmaceutical

0.53

Correlation Coefficient

Elanco Animal  Collegium Pharmaceutical

Very weak diversification

The 3 months correlation between Elanco and Collegium is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and Collegium Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collegium Pharmaceutical 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 Collegium Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collegium Pharmaceutical has no effect on the direction of Elanco Animal i.e., Elanco Animal and Collegium Pharmaceutical go up and down completely randomly.

Pair Corralation between Elanco Animal and Collegium Pharmaceutical

Given the investment horizon of 90 days Elanco Animal Health is expected to generate 1.17 times more return on investment than Collegium Pharmaceutical. However, Elanco Animal is 1.17 times more volatile than Collegium Pharmaceutical. It trades about -0.09 of its potential returns per unit of risk. Collegium Pharmaceutical is currently generating about -0.13 per unit of risk. If you would invest  1,453  in Elanco Animal Health on September 14, 2024 and sell it today you would lose (243.00) from holding Elanco Animal Health or give up 16.72% of portfolio value over 90 days.

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

Elanco Animal Health  vs.  Collegium Pharmaceutical

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health 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 very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Collegium Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Elanco Animal and Collegium Pharmaceutical

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

The idea behind Elanco Animal Health and Collegium Pharmaceutical 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.