Correlation Between GlaxoSmithKline PLC and Eli Lilly
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC 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 GlaxoSmithKline PLC and Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GlaxoSmithKline PLC ADR and Eli Lilly and, you can compare the effects of market volatilities on GlaxoSmithKline PLC 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 GlaxoSmithKline PLC with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Eli Lilly.
Diversification Opportunities for GlaxoSmithKline PLC and Eli Lilly
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GlaxoSmithKline and Eli is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Eli Lilly go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Eli Lilly
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.71 times more return on investment than Eli Lilly. However, GlaxoSmithKline PLC ADR is 1.42 times less risky than Eli Lilly. It trades about -0.08 of its potential returns per unit of risk. Eli Lilly and is currently generating about -0.08 per unit of risk. If you would invest 3,512 in GlaxoSmithKline PLC ADR on September 13, 2024 and sell it today you would lose (95.00) from holding GlaxoSmithKline PLC ADR or give up 2.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Eli Lilly and
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Eli Lilly |
GlaxoSmithKline PLC and Eli Lilly Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Eli Lilly
The main advantage of trading using opposite GlaxoSmithKline PLC and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC 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.| GlaxoSmithKline PLC vs. Novartis AG ADR | GlaxoSmithKline PLC vs. AstraZeneca PLC ADR | GlaxoSmithKline PLC vs. Roche Holding Ltd | GlaxoSmithKline PLC vs. Bristol Myers Squibb |
| Eli Lilly vs. Johnson Johnson | Eli Lilly vs. Bristol Myers Squibb | Eli Lilly vs. AbbVie Inc | Eli Lilly vs. Pfizer 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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