Correlation Between Elanco Animal and Soleno Therapeutics

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

Diversification Opportunities for Elanco Animal and Soleno Therapeutics

-0.6

Correlation Coefficient

Elanco Animal  Soleno Therapeutics

Excellent diversification

The 3 months correlation between Elanco and Soleno is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and Soleno Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soleno Therapeutics 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 Soleno Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soleno Therapeutics has no effect on the direction of Elanco Animal i.e., Elanco Animal and Soleno Therapeutics go up and down completely randomly.

Pair Corralation between Elanco Animal and Soleno Therapeutics

Given the investment horizon of 90 days Elanco Animal Health is expected to generate 1.04 times more return on investment than Soleno Therapeutics. However, Elanco Animal is 1.04 times more volatile than Soleno Therapeutics. It trades about 0.08 of its potential returns per unit of risk. Soleno Therapeutics is currently generating about -0.05 per unit of risk. If you would invest  1,264  in Elanco Animal Health on September 1, 2024 and sell it today you would earn a total of  57.00  from holding Elanco Animal Health or generate 4.51% return on investment over 90 days.

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

Elanco Animal Health  vs.  Soleno Therapeutics

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Soleno Therapeutics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Soleno Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Soleno Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elanco Animal and Soleno Therapeutics

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

The idea behind Elanco Animal Health and Soleno Therapeutics 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.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.