Correlation Between China Mengniu and Bristol Myers

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

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

Diversification Opportunities for China Mengniu and Bristol Myers

0.22

Correlation Coefficient

China Mengniu  Bristol Myers

Modest diversification

The 3 months correlation between China and Bristol is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy 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 China Mengniu 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 China Mengniu Dairy 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 China Mengniu i.e., China Mengniu and Bristol Myers go up and down completely randomly.

Pair Corralation between China Mengniu and Bristol Myers

Assuming the 90 days horizon China Mengniu Dairy is expected to under-perform the Bristol Myers. In addition to that, China Mengniu is 1.94 times more volatile than Bristol Myers Squibb. It trades about -0.03 of its total potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.01 per unit of volatility. If you would invest  6,642  in Bristol Myers Squibb on September 22, 2024 and sell it today you would lose (909.00) from holding Bristol Myers Squibb or give up 13.69% of portfolio value over 90 days.

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

China Mengniu Dairy  vs.  Bristol Myers Squibb

China Mengniu Dairy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Bristol Myers Squibb

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain primary indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Mengniu and Bristol Myers

The main advantage of trading using opposite China Mengniu and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mengniu 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 China Mengniu Dairy 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 Transaction History module to view history of all your transactions and understand their impact on performance.