Correlation Between Eli Lilly and Bayer AG

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

Diversification Opportunities for Eli Lilly and Bayer AG

0.69

Correlation Coefficient

Eli Lilly  Bayer AG

Poor diversification

The 3 months correlation between Eli and Bayer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Bayer AG NA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG NA 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 Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG NA has no effect on the direction of Eli Lilly i.e., Eli Lilly and Bayer AG go up and down completely randomly.

Pair Corralation between Eli Lilly and Bayer AG

Assuming the 90 days trading horizon Eli Lilly and is expected to generate 0.89 times more return on investment than Bayer AG. However, Eli Lilly and is 1.12 times less risky than Bayer AG. It trades about -0.05 of its potential returns per unit of risk. Bayer AG NA is currently generating about -0.2 per unit of risk. If you would invest  81,809  in Eli Lilly and on September 17, 2024 and sell it today you would lose (7,209) from holding Eli Lilly and or give up 8.81% 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.  Bayer AG NA

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA 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 rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Eli Lilly and Bayer AG

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

The idea behind Eli Lilly and and Bayer AG NA 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 Global Correlations module to find global opportunities by holding instruments from different markets.