Correlation Between PEPSICO and Bristol Myers

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

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

Diversification Opportunities for PEPSICO and Bristol Myers

-0.56

Correlation Coefficient

PEPSICO  Bristol Myers

Excellent diversification

The 3 months correlation between PEPSICO and Bristol is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding PEPSICO INC 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 PEPSICO 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 PEPSICO INC 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 PEPSICO i.e., PEPSICO and Bristol Myers go up and down completely randomly.

Pair Corralation between PEPSICO and Bristol Myers

Assuming the 90 days trading horizon PEPSICO is expected to generate 12.4 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, PEPSICO INC is 2.3 times less risky than Bristol Myers. It trades about 0.01 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  72,000  in Bristol Myers Squibb on October 13, 2024 and sell it today you would earn a total of  21,522  from holding Bristol Myers Squibb or generate 29.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	75.0%
Values	Daily Returns

PEPSICO INC  vs.  Bristol Myers Squibb

PEPSICO INC

Risk-Adjusted Performance

0 of 100

Insignificant

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

Bristol Myers Squibb

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Bristol Myers may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with PEPSICO and Bristol Myers

The main advantage of trading using opposite PEPSICO and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PEPSICO 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 PEPSICO INC 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.