Correlation Between Bristol Myers and Madrigal Pharmaceuticals

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

Diversification Opportunities for Bristol Myers and Madrigal Pharmaceuticals

0.68

Correlation Coefficient

Bristol Myers  Madrigal Pharmaceuticals

Poor diversification

The 3 months correlation between Bristol and Madrigal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Madrigal Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madrigal Pharmaceuticals has no effect on the direction of Bristol Myers i.e., Bristol Myers and Madrigal Pharmaceuticals go up and down completely randomly.

Pair Corralation between Bristol Myers and Madrigal Pharmaceuticals

Considering the 90-day investment horizon Bristol Myers is expected to generate 3.63 times less return on investment than Madrigal Pharmaceuticals. But when comparing it to its historical volatility, Bristol Myers Squibb is 2.44 times less risky than Madrigal Pharmaceuticals. It trades about 0.2 of its potential returns per unit of risk. Madrigal Pharmaceuticals is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  21,779  in Madrigal Pharmaceuticals on August 30, 2024 and sell it today you would earn a total of  11,366  from holding Madrigal Pharmaceuticals or generate 52.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bristol Myers Squibb  vs.  Madrigal Pharmaceuticals

Bristol Myers Squibb

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain primary indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

Madrigal Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Madrigal Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bristol Myers and Madrigal Pharmaceuticals

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

The idea behind Bristol Myers Squibb and Madrigal Pharmaceuticals 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.