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, 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
Poor diversification
The 3 months correlation between Eli and Bayer is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG 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 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
Considering the 90-day investment horizon Eli Lilly and is expected to generate 0.66 times more return on investment than Bayer AG. However, Eli Lilly and is 1.51 times less risky than Bayer AG. It trades about -0.15 of its potential returns per unit of risk. Bayer AG is currently generating about -0.22 per unit of risk. If you would invest 95,495 in Eli Lilly and on August 31, 2024 and sell it today you would lose (16,676) from holding Eli Lilly and or give up 17.46% 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
Performance |
| Timeline |
| Eli Lilly |
| Bayer AG |
Eli Lilly and Bayer AG Volatility Contrast
Predicted Return Density |
| Returns |
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.| Eli Lilly vs. Pfizer Inc | Eli Lilly vs. RLJ Lodging Trust | Eli Lilly vs. Aquagold International | Eli Lilly vs. Stepstone Group |
| Bayer AG vs. Broadstone Net Lease | Bayer AG vs. Akanda Corp | Bayer AG vs. Alvotech | Bayer AG vs. Aquestive Therapeutics |
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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