Correlation Between Citigroup and Bristol Myers

Can any of the company-specific risk be diversified away by investing in both Citigroup and Bristol Myers 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 Citigroup and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and Bristol Myers Squibb, you can compare the effects of market volatilities on Citigroup and Bristol Myers 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 Citigroup with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Bristol Myers.

Diversification Opportunities for Citigroup and Bristol Myers

0.92

Correlation Coefficient

Citigroup  Bristol Myers

Almost no diversification

The 3 months correlation between Citigroup and Bristol is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb and Citigroup 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 Citigroup are associated (or correlated) with Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of Citigroup i.e., Citigroup and Bristol Myers go up and down completely randomly.

Pair Corralation between Citigroup and Bristol Myers

Taking into account the 90-day investment horizon Citigroup is expected to generate 3.13 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, Citigroup is 1.33 times less risky than Bristol Myers. It trades about 0.06 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  22,894  in Bristol Myers Squibb on September 26, 2024 and sell it today you would earn a total of  12,631  from holding Bristol Myers Squibb or generate 55.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  Bristol Myers Squibb

Citigroup

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bristol Myers Squibb

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bristol Myers sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Bristol Myers

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

The idea behind Citigroup and Bristol Myers Squibb 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.