Correlation Between Bristol Myers and Encanto Potash

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

Diversification Opportunities for Bristol Myers and Encanto Potash

-0.78

Correlation Coefficient

Bristol Myers  Encanto Potash

Pay attention - limited upside

The 3 months correlation between Bristol and Encanto is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Encanto Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encanto Potash Corp 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 Encanto Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encanto Potash Corp has no effect on the direction of Bristol Myers i.e., Bristol Myers and Encanto Potash go up and down completely randomly.

Pair Corralation between Bristol Myers and Encanto Potash

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 3.34 times more return on investment than Encanto Potash. However, Bristol Myers is 3.34 times more volatile than Encanto Potash Corp. It trades about 0.14 of its potential returns per unit of risk. Encanto Potash Corp is currently generating about -0.13 per unit of risk. If you would invest  73,550  in Bristol Myers Squibb on September 13, 2024 and sell it today you would earn a total of  22,005  from holding Bristol Myers Squibb or generate 29.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Bristol Myers Squibb  vs.  Encanto Potash Corp

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. Even with relatively fragile primary indicators, Bristol Myers reported solid returns over the last few months and may actually be approaching a breakup point.

Encanto Potash Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Encanto Potash Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bristol Myers and Encanto Potash

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

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