Correlation Between Bristol Myers and International Paper

Can any of the company-specific risk be diversified away by investing in both Bristol Myers and International Paper 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 International Paper 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 International Paper, you can compare the effects of market volatilities on Bristol Myers and International Paper 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 International Paper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bristol Myers and International Paper.

Diversification Opportunities for Bristol Myers and International Paper

0.75

Correlation Coefficient

Bristol Myers  International Paper

Poor diversification

The 3 months correlation between Bristol and International is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of Bristol Myers i.e., Bristol Myers and International Paper go up and down completely randomly.

Pair Corralation between Bristol Myers and International Paper

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the International Paper. But the stock apears to be less risky and, when comparing its historical volatility, Bristol Myers Squibb is 1.7 times less risky than International Paper. The stock trades about -0.01 of its potential returns per unit of risk. The International Paper is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,700  in International Paper on September 26, 2024 and sell it today you would lose (100.00) from holding International Paper or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	56.65%
Values	Daily Returns

Bristol Myers Squibb  vs.  International Paper

Bristol Myers Squibb

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 10 (%) 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.

International Paper

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Paper is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bristol Myers and International Paper

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

The idea behind Bristol Myers Squibb and International Paper 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.