Correlation Between Bristol-Myers Squibb and NXP Semiconductors

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

Diversification Opportunities for Bristol-Myers Squibb and NXP Semiconductors

-0.2

Correlation Coefficient

Bristol-Myers Squibb  NXP Semiconductors

Good diversification

The 3 months correlation between Bristol-Myers and NXP is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors 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 NXP Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXP Semiconductors has no effect on the direction of Bristol-Myers Squibb i.e., Bristol-Myers Squibb and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Bristol-Myers Squibb and NXP Semiconductors

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 1.58 times more return on investment than NXP Semiconductors. However, Bristol-Myers Squibb is 1.58 times more volatile than NXP Semiconductors NV. It trades about 0.06 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.04 per unit of risk. If you would invest  93,474  in Bristol Myers Squibb on December 30, 2024 and sell it today you would earn a total of  6,846  from holding Bristol Myers Squibb or generate 7.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	64.52%
Values	Daily Returns

Bristol Myers Squibb  vs.  NXP Semiconductors NV

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 5 (%) 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.

NXP Semiconductors

Risk-Adjusted Performance

Very Weak

Over the last 90 days NXP Semiconductors NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Bristol-Myers Squibb and NXP Semiconductors

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

The idea behind Bristol Myers Squibb and NXP Semiconductors NV 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.