Correlation Between Bristol Myers and Merck
Can any of the company-specific risk be diversified away by investing in both Bristol Myers and Merck 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 Bristol Myers and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bristol Myers Squibb and Merck Company, you can compare the effects of market volatilities on Bristol Myers and Merck 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 Bristol Myers with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bristol Myers and Merck.
Diversification Opportunities for Bristol Myers and Merck
-0.83 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Bristol and Merck is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Bristol Myers 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 Bristol Myers Squibb are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Bristol Myers i.e., Bristol Myers and Merck go up and down completely randomly.
Pair Corralation between Bristol Myers and Merck
Assuming the 90 days trading horizon Bristol Myers Squibb is expected to generate 1.28 times more return on investment than Merck. However, Bristol Myers is 1.28 times more volatile than Merck Company. It trades about 0.19 of its potential returns per unit of risk. Merck Company is currently generating about -0.02 per unit of risk. If you would invest 72,578 in Bristol Myers Squibb on September 2, 2024 and sell it today you would earn a total of 49,622 from holding Bristol Myers Squibb or generate 68.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Bristol Myers Squibb vs. Merck Company
Performance |
| Timeline |
| Bristol Myers Squibb |
| Merck Company |
Bristol Myers and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bristol Myers and Merck
The main advantage of trading using opposite Bristol Myers and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Bristol Myers vs. Verizon Communications | Bristol Myers vs. First Republic Bank | Bristol Myers vs. UnitedHealth Group Incorporated | Bristol Myers vs. Prudential Financial |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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