Correlation Between Novartis and Bristol-Myers Squibb

Can any of the company-specific risk be diversified away by investing in both Novartis 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 Novartis 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 Novartis AG ADR and Bristol Myers Squibb, you can compare the effects of market volatilities on Novartis 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 Novartis with a short position of Bristol-Myers Squibb. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Bristol-Myers Squibb.

Diversification Opportunities for Novartis and Bristol-Myers Squibb

0.34

Correlation Coefficient

Novartis  Bristol-Myers Squibb

Weak diversification

The 3 months correlation between Novartis and Bristol-Myers is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR 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 Novartis 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 Novartis AG ADR 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 Novartis i.e., Novartis and Bristol-Myers Squibb go up and down completely randomly.

Pair Corralation between Novartis and Bristol-Myers Squibb

Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.44 times more return on investment than Bristol-Myers Squibb. However, Novartis AG ADR is 2.29 times less risky than Bristol-Myers Squibb. It trades about 0.19 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.13 per unit of risk. If you would invest  10,548  in Novartis AG ADR on December 5, 2024 and sell it today you would earn a total of  594.00  from holding Novartis AG ADR or generate 5.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Novartis AG ADR  vs.  Bristol Myers Squibb

Novartis AG ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Novartis may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 fragile performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Novartis and Bristol-Myers Squibb

The main advantage of trading using opposite Novartis and Bristol-Myers Squibb positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis 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 Novartis AG ADR 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.