Correlation Between Eli Lilly and AstraZeneca PLC

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

Diversification Opportunities for Eli Lilly and AstraZeneca PLC

0.87

Correlation Coefficient

Eli Lilly  AstraZeneca PLC

Very poor diversification

The 3 months correlation between Eli and AstraZeneca is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and AstraZeneca PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC 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 AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC has no effect on the direction of Eli Lilly i.e., Eli Lilly and AstraZeneca PLC go up and down completely randomly.

Pair Corralation between Eli Lilly and AstraZeneca PLC

Assuming the 90 days horizon Eli Lilly and is expected to generate 1.23 times more return on investment than AstraZeneca PLC. However, Eli Lilly is 1.23 times more volatile than AstraZeneca PLC. It trades about 0.09 of its potential returns per unit of risk. AstraZeneca PLC is currently generating about 0.01 per unit of risk. If you would invest  33,306  in Eli Lilly and on September 3, 2024 and sell it today you would earn a total of  41,834  from holding Eli Lilly and or generate 125.6% return on investment over 90 days.

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

Eli Lilly and  vs.  AstraZeneca PLC

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 fragile 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.

AstraZeneca PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AstraZeneca PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eli Lilly and AstraZeneca PLC

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

The idea behind Eli Lilly and and AstraZeneca PLC 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.