Correlation Between Eli Lilly and Volkswagen

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

Diversification Opportunities for Eli Lilly and Volkswagen

0.76

Correlation Coefficient

Eli Lilly  Volkswagen

Poor diversification

The 3 months correlation between Eli and Volkswagen is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Eli Lilly i.e., Eli Lilly and Volkswagen go up and down completely randomly.

Pair Corralation between Eli Lilly and Volkswagen

Assuming the 90 days horizon Eli Lilly and is expected to under-perform the Volkswagen. In addition to that, Eli Lilly is 1.27 times more volatile than Volkswagen AG. It trades about -0.06 of its total potential returns per unit of risk. Volkswagen AG is currently generating about -0.06 per unit of volatility. If you would invest  9,550  in Volkswagen AG on September 12, 2024 and sell it today you would lose (725.00) from holding Volkswagen AG or give up 7.59% of portfolio value over 90 days.

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

Eli Lilly and  vs.  Volkswagen AG

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.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Eli Lilly and Volkswagen

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

The idea behind Eli Lilly and and Volkswagen AG 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.