Correlation Between Bristol Myers and Health Care

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

Diversification Opportunities for Bristol Myers and Health Care

-0.74

Correlation Coefficient

Bristol Myers  Health Care

Pay attention - limited upside

The 3 months correlation between Bristol and Health is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Bristol Myers i.e., Bristol Myers and Health Care go up and down completely randomly.

Pair Corralation between Bristol Myers and Health Care

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 5.73 times more return on investment than Health Care. However, Bristol Myers is 5.73 times more volatile than Health Care Select. It trades about 0.0 of its potential returns per unit of risk. Health Care Select is currently generating about 0.01 per unit of risk. If you would invest  117,420  in Bristol Myers Squibb on October 11, 2024 and sell it today you would lose (17,531) from holding Bristol Myers Squibb or give up 14.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	50.61%
Values	Daily Returns

Bristol Myers Squibb  vs.  Health Care Select

Pair Trading with Bristol Myers and Health Care

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

The idea behind Bristol Myers Squibb and Health Care Select 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.