Correlation Between Eli Lilly and AbbVie

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

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

Diversification Opportunities for Eli Lilly and AbbVie

0.29

Correlation Coefficient

Eli Lilly  AbbVie

Modest diversification

The 3 months correlation between Eli and AbbVie is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Eli Lilly 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 Eli Lilly and 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 Eli Lilly i.e., Eli Lilly and AbbVie go up and down completely randomly.

Pair Corralation between Eli Lilly and AbbVie

Assuming the 90 days horizon Eli Lilly and is expected to under-perform the AbbVie. But the stock apears to be less risky and, when comparing its historical volatility, Eli Lilly and is 1.03 times less risky than AbbVie. The stock trades about -0.07 of its potential returns per unit of risk. The AbbVie Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  17,581  in AbbVie Inc on September 4, 2024 and sell it today you would lose (381.00) from holding AbbVie Inc or give up 2.17% of portfolio value over 90 days.

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

Eli Lilly and  vs.  AbbVie Inc

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite nearly stable basic indicators, AbbVie is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eli Lilly and AbbVie

The main advantage of trading using opposite Eli Lilly and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly 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 Eli Lilly and 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..