One of the market's strongest health care performers barely moves with the index you already own, and that gap is the whole point.
Eli Lilly (LLY) has done what every investor wishes their stocks would do: over the past five trading days it is up about 4.4% while the S&P 500 slipped 0.4%. It has returned about 36% over the past three months and about 50% over the past year, and now trades within about 3% of its 52-week high. If you own it, the urge is to hold tight; if you only watched, the pull is to buy before it gets away. Both instincts answer the wrong question. What decides what this stock does for your money is not where it goes next week, but how much of that return is Eli Lilly's own story rather than the market you already own through an index fund.
How Much Of Eli Lilly's Return Is Its Own Story?
Correlation answers that. Over the past five years the stock has moved with the S&P 500 at a correlation of just 0.31, on a scale where 1.0 is perfect lockstep and 0 is no relationship at all. At that level most of what it does has little to do with the broad market you already hold, the mark of a genuine diversifier rather than one more slice of the index in disguise. The independence shows elsewhere too: its correlation to gold is essentially nil at 0.05, and to real estate only 0.25. Over those five years Eli Lilly compounded at about 40% a year, more than three times the S&P 500's 12.9%, at a higher volatility of 33% against the index's 17.1%. Adjust for risk and it still leads: its Sharpe ratio, return earned above the risk-free rate per unit of volatility (which is why it runs lower than simply dividing return by volatility), is 1.08 against 0.58 for the index.
Why Eli Lilly Rose With The Market But Barely Fell With It
#index #lilly #past #market
Eli Lilly (LLY) has done what every investor wishes their stocks would do: over the past five trading days it is up about 4.4% while the S&P 500 slipped 0.4%. It has returned about 36% over the past three months and about 50% over the past year, and now trades within about 3% of its 52-week high. If you own it, the urge is to hold tight; if you only watched, the pull is to buy before it gets away. Both instincts answer the wrong question. What decides what this stock does for your money is not where it goes next week, but how much of that return is Eli Lilly's own story rather than the market you already own through an index fund.
How Much Of Eli Lilly's Return Is Its Own Story?
Correlation answers that. Over the past five years the stock has moved with the S&P 500 at a correlation of just 0.31, on a scale where 1.0 is perfect lockstep and 0 is no relationship at all. At that level most of what it does has little to do with the broad market you already hold, the mark of a genuine diversifier rather than one more slice of the index in disguise. The independence shows elsewhere too: its correlation to gold is essentially nil at 0.05, and to real estate only 0.25. Over those five years Eli Lilly compounded at about 40% a year, more than three times the S&P 500's 12.9%, at a higher volatility of 33% against the index's 17.1%. Adjust for risk and it still leads: its Sharpe ratio, return earned above the risk-free rate per unit of volatility (which is why it runs lower than simply dividing return by volatility), is 1.08 against 0.58 for the index.
Why Eli Lilly Rose With The Market But Barely Fell With It
#index #lilly #past #market
24 days ago
