Correlation Between Eli Lilly and Eton Pharmaceuticals

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

Diversification Opportunities for Eli Lilly and Eton Pharmaceuticals

-0.76

Correlation Coefficient

Eli Lilly  Eton Pharmaceuticals

Pay attention - limited upside

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

Pair Corralation between Eli Lilly and Eton Pharmaceuticals

Considering the 90-day investment horizon Eli Lilly and is expected to under-perform the Eton Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Eli Lilly and is 1.8 times less risky than Eton Pharmaceuticals. The stock trades about -0.07 of its potential returns per unit of risk. The Eton Pharmaceuticals is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,060  in Eton Pharmaceuticals on September 14, 2024 and sell it today you would earn a total of  156.00  from holding Eton Pharmaceuticals or generate 14.72% return on investment over 90 days.

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

Eli Lilly and  vs.  Eton Pharmaceuticals

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 sluggish performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Eton Pharmaceuticals

Risk-Adjusted Performance

24 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eli Lilly and Eton Pharmaceuticals

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

The idea behind Eli Lilly and and Eton Pharmaceuticals 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.