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
Significant diversification
The 3 months correlation between Microsoft and Eli is 0.05. 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
Given the investment horizon of 90 days Microsoft is expected to generate 2.32 times less return on investment than Eli Lilly. But when comparing it to its historical volatility, Microsoft is 1.7 times less risky than Eli Lilly. It trades about 0.07 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 760,051 in Eli Lilly and on August 31, 2024 and sell it today you would earn a total of 864,822 from holding Eli Lilly and or generate 113.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.75% |
| 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. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Eli Lilly vs. Grupo Sports World | Eli Lilly vs. Verizon Communications | Eli Lilly vs. Costco Wholesale | Eli Lilly vs. Ross Stores |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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