Correlation Between NVIDIA and Bristol-Myers Squibb

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

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

Diversification Opportunities for NVIDIA and Bristol-Myers Squibb

-0.39

Correlation Coefficient

NVIDIA  Bristol-Myers Squibb

Very good diversification

The 3 months correlation between NVIDIA and Bristol-Myers is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA 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 NVIDIA 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 NVIDIA are associated (or correlated) with Bristol-Myers Squibb. 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 NVIDIA i.e., NVIDIA and Bristol-Myers Squibb go up and down completely randomly.

Pair Corralation between NVIDIA and Bristol-Myers Squibb

Given the investment horizon of 90 days NVIDIA is expected to generate 0.95 times more return on investment than Bristol-Myers Squibb. However, NVIDIA is 1.05 times less risky than Bristol-Myers Squibb. It trades about -0.01 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.05 per unit of risk. If you would invest  13,824  in NVIDIA on November 29, 2024 and sell it today you would lose (696.00) from holding NVIDIA or give up 5.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	37.29%
Values	Daily Returns

NVIDIA  vs.  Bristol Myers Squibb

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, NVIDIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Bristol Myers Squibb

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bristol Myers Squibb has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with NVIDIA and Bristol-Myers Squibb

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

The idea behind NVIDIA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .