Correlation Between Microsoft and Eli Lilly
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Eli Lilly and, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Eli Lilly.
Diversification Opportunities for Microsoft and Eli Lilly
Very good diversification
The 3 months correlation between Microsoft and Eli is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Eli Lilly go up and down completely randomly.
Pair Corralation between Microsoft and Eli Lilly
Assuming the 90 days trading horizon Microsoft is expected to generate 1.39 times less return on investment than Eli Lilly. But when comparing it to its historical volatility, Microsoft is 1.44 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 of returns per unit of risk over similar time horizon. If you would invest 34,575 in Eli Lilly and on August 27, 2024 and sell it today you would earn a total of 37,495 from holding Eli Lilly and or generate 108.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Eli Lilly and
Performance |
| Timeline |
| Microsoft |
| Eli Lilly |
Microsoft and Eli Lilly Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Eli Lilly
The main advantage of trading using opposite Microsoft and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Media and Games | Microsoft vs. Martin Marietta Materials | Microsoft vs. Summit Materials | Microsoft vs. Vulcan Materials |
| Eli Lilly vs. Universal Display | Eli Lilly vs. Cogent Communications Holdings | Eli Lilly vs. Charter Communications | Eli Lilly vs. Wayside Technology Group |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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