Correlation Between Bristol Myers and Johnson Johnson

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

Diversification Opportunities for Bristol Myers and Johnson Johnson

-0.77

Correlation Coefficient

Bristol Myers  Johnson Johnson

Pay attention - limited upside

The 3 months correlation between Bristol and Johnson is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson 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 Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Bristol Myers i.e., Bristol Myers and Johnson Johnson go up and down completely randomly.

Pair Corralation between Bristol Myers and Johnson Johnson

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 4.47 times more return on investment than Johnson Johnson. However, Bristol Myers is 4.47 times more volatile than Johnson Johnson. It trades about 0.12 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.25 per unit of risk. If you would invest  73,550  in Bristol Myers Squibb on September 16, 2024 and sell it today you would earn a total of  18,672  from holding Bristol Myers Squibb or generate 25.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Bristol Myers Squibb  vs.  Johnson Johnson

Bristol Myers Squibb

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 9 (%) 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.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Pair Trading with Bristol Myers and Johnson Johnson

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

The idea behind Bristol Myers Squibb and Johnson Johnson 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.