Correlation Between Capital One and Bristol Myers

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

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

Diversification Opportunities for Capital One and Bristol Myers

0.95

Correlation Coefficient

Capital One  Bristol Myers

Almost no diversification

The 3 months correlation between Capital and Bristol is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial 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 Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Bristol Myers go up and down completely randomly.

Pair Corralation between Capital One and Bristol Myers

Assuming the 90 days trading horizon Capital One is expected to generate 1.16 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, Capital One Financial is 1.32 times less risky than Bristol Myers. It trades about 0.11 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  34,131  in Bristol Myers Squibb on September 25, 2024 and sell it today you would earn a total of  1,394  from holding Bristol Myers Squibb or generate 4.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Capital One Financial  vs.  Bristol Myers Squibb

Capital One Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained 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 Capital One and Bristol Myers

The main advantage of trading using opposite Capital One and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.