Correlation Between Boeing and Bristol Myers
Can any of the company-specific risk be diversified away by investing in both Boeing 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 Boeing and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Boeing and Bristol Myers Squibb, you can compare the effects of market volatilities on Boeing 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 Boeing with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and Bristol Myers.
Diversification Opportunities for Boeing and Bristol Myers
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Boeing and Bristol is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing 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 Boeing 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 The Boeing 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 Boeing i.e., Boeing and Bristol Myers go up and down completely randomly.
Pair Corralation between Boeing and Bristol Myers
Assuming the 90 days horizon Boeing is expected to generate 1.63 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, The Boeing is 1.0 times less risky than Bristol Myers. It trades about 0.08 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 98,414 in Bristol Myers Squibb on November 2, 2024 and sell it today you would earn a total of 26,586 from holding Bristol Myers Squibb or generate 27.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.03% |
| Values | Daily Returns |
The Boeing vs. Bristol Myers Squibb
Performance |
| Timeline |
| Boeing |
| Bristol Myers Squibb |
Boeing and Bristol Myers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Boeing and Bristol Myers
The main advantage of trading using opposite Boeing and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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 The Boeing 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.| Bristol Myers vs. Eli Lilly and | Bristol Myers vs. Merck Company | Bristol Myers vs. Roche Holding AG | Bristol Myers vs. Amgen Inc |
Check out your portfolio center.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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