Correlation Between Porto Seguro and Bristol Myers

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

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

Diversification Opportunities for Porto Seguro and Bristol Myers

0.76

Correlation Coefficient

Porto Seguro  Bristol Myers

Poor diversification

The 3 months correlation between Porto and Bristol is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Porto Seguro SA 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 Porto Seguro 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 Porto Seguro SA 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 Porto Seguro i.e., Porto Seguro and Bristol Myers go up and down completely randomly.

Pair Corralation between Porto Seguro and Bristol Myers

Assuming the 90 days trading horizon Porto Seguro SA is expected to generate 0.55 times more return on investment than Bristol Myers. However, Porto Seguro SA is 1.82 times less risky than Bristol Myers. It trades about 0.09 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.01 per unit of risk. If you would invest  2,008  in Porto Seguro SA on September 25, 2024 and sell it today you would earn a total of  1,706  from holding Porto Seguro SA or generate 84.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.6%
Values	Daily Returns

Porto Seguro SA  vs.  Bristol Myers Squibb

Porto Seguro SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Porto Seguro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Porto Seguro and Bristol Myers

The main advantage of trading using opposite Porto Seguro and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Porto Seguro 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 Porto Seguro SA 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.