Correlation Between Bristol-Myers Squibb and MCF Energy

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

Diversification Opportunities for Bristol-Myers Squibb and MCF Energy

0.27

Correlation Coefficient

Bristol-Myers Squibb  MCF Energy

Modest diversification

The 3 months correlation between Bristol-Myers and MCF is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and MCF Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCF Energy and Bristol-Myers Squibb 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 MCF Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCF Energy has no effect on the direction of Bristol-Myers Squibb i.e., Bristol-Myers Squibb and MCF Energy go up and down completely randomly.

Pair Corralation between Bristol-Myers Squibb and MCF Energy

Assuming the 90 days horizon Bristol-Myers Squibb is expected to generate 4.22 times less return on investment than MCF Energy. But when comparing it to its historical volatility, Bristol Myers Squibb is 1.96 times less risky than MCF Energy. It trades about 0.06 of its potential returns per unit of risk. MCF Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2.90  in MCF Energy on December 28, 2024 and sell it today you would earn a total of  1.70  from holding MCF Energy or generate 58.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.33%
Values	Daily Returns

Bristol Myers Squibb  vs.  MCF Energy

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 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Bristol-Myers Squibb reported solid returns over the last few months and may actually be approaching a breakup point.

MCF Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCF Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, MCF Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bristol-Myers Squibb and MCF Energy

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

The idea behind Bristol Myers Squibb and MCF Energy 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.