Correlation Between Bristol Myers and Eli Lilly

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

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

Diversification Opportunities for Bristol Myers and Eli Lilly

0.15

Correlation Coefficient

Bristol Myers  Eli Lilly

Average diversification

The 3 months correlation between Bristol and Eli is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly and Bristol Myers 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 Bristol Myers Squibb 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 Bristol Myers i.e., Bristol Myers and Eli Lilly go up and down completely randomly.

Pair Corralation between Bristol Myers and Eli Lilly

Assuming the 90 days trading horizon Bristol Myers Squibb is expected to generate 0.71 times more return on investment than Eli Lilly. However, Bristol Myers Squibb is 1.4 times less risky than Eli Lilly. It trades about 0.06 of its potential returns per unit of risk. Eli Lilly and is currently generating about 0.04 per unit of risk. If you would invest  115,031  in Bristol Myers Squibb on December 29, 2024 and sell it today you would earn a total of  6,432  from holding Bristol Myers Squibb or generate 5.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Bristol Myers Squibb  vs.  Eli Lilly and

Bristol Myers Squibb

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Bristol Myers is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Eli Lilly

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Eli Lilly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bristol Myers and Eli Lilly

The main advantage of trading using opposite Bristol Myers and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers 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.

The idea behind Bristol Myers Squibb and Eli Lilly and 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.