Correlation Between Bayer AG and Bristol Myers

Can any of the company-specific risk be diversified away by investing in both Bayer AG and Bristol Myers 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 Bayer AG and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bayer AG PK and Bristol Myers Squibb, you can compare the effects of market volatilities on Bayer AG and Bristol Myers 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 Bayer AG with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and Bristol Myers.

Diversification Opportunities for Bayer AG and Bristol Myers

-0.05

Correlation Coefficient

Bayer AG  Bristol Myers

Good diversification

The 3 months correlation between Bayer and Bristol is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG PK and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb and Bayer AG 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 Bayer AG PK are associated (or correlated) with Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of Bayer AG i.e., Bayer AG and Bristol Myers go up and down completely randomly.

Pair Corralation between Bayer AG and Bristol Myers

Assuming the 90 days horizon Bayer AG PK is expected to generate 1.1 times more return on investment than Bristol Myers. However, Bayer AG is 1.1 times more volatile than Bristol Myers Squibb. It trades about 0.29 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.01 per unit of risk. If you would invest  1,530  in Bayer AG PK on September 3, 2024 and sell it today you would earn a total of  156.00  from holding Bayer AG PK or generate 10.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.21%
Values	Daily Returns

Bayer AG PK  vs.  Bristol Myers Squibb

Bayer AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bayer AG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Bristol Myers Squibb

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady primary indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bayer AG and Bristol Myers

The main advantage of trading using opposite Bayer AG and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayer AG position performs unexpectedly, Bristol Myers 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 Bristol Myers will offset losses from the drop in Bristol Myers' long position.

The idea behind Bayer AG PK and Bristol Myers Squibb pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.