Correlation Between APA and Eli Lilly
Can any of the company-specific risk be diversified away by investing in both APA and Eli Lilly 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 APA and Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between APA Corporation and Eli Lilly and, you can compare the effects of market volatilities on APA and Eli Lilly 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 APA with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Eli Lilly.
Diversification Opportunities for APA and Eli Lilly
Poor diversification
The 3 months correlation between APA and Eli is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and APA 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 APA Corporation are associated (or correlated) with Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of APA i.e., APA and Eli Lilly go up and down completely randomly.
Pair Corralation between APA and Eli Lilly
Assuming the 90 days trading horizon APA Corporation is expected to under-perform the Eli Lilly. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.12 times less risky than Eli Lilly. The stock trades about -0.02 of its potential returns per unit of risk. The Eli Lilly and is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,512,435 in Eli Lilly and on September 2, 2024 and sell it today you would earn a total of 105,615 from holding Eli Lilly and or generate 6.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
APA Corp. vs. Eli Lilly and
Performance |
| Timeline |
| APA Corporation |
| Eli Lilly |
APA and Eli Lilly Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with APA and Eli Lilly
The main advantage of trading using opposite APA and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA position performs unexpectedly, Eli Lilly 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 Eli Lilly will offset losses from the drop in Eli Lilly's long position.| APA vs. Delta Air Lines | APA vs. Lloyds Banking Group | APA vs. Martin Marietta Materials | APA vs. Applied Materials |
| Eli Lilly vs. Roche Holding AG | Eli Lilly vs. Amgen Inc | Eli Lilly vs. Gilead Sciences | Eli Lilly vs. Biogen Inc |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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