Correlation Between Schlumberger and Bristol Myers
Can any of the company-specific risk be diversified away by investing in both Schlumberger 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 Schlumberger and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schlumberger Limited and Bristol Myers Squibb, you can compare the effects of market volatilities on Schlumberger 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 Schlumberger with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schlumberger and Bristol Myers.
Diversification Opportunities for Schlumberger and Bristol Myers
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Schlumberger and Bristol is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Schlumberger Limited 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 Schlumberger 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 Schlumberger Limited 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 Schlumberger i.e., Schlumberger and Bristol Myers go up and down completely randomly.
Pair Corralation between Schlumberger and Bristol Myers
Assuming the 90 days trading horizon Schlumberger Limited is expected to generate 0.88 times more return on investment than Bristol Myers. However, Schlumberger Limited is 1.14 times less risky than Bristol Myers. It trades about 0.21 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.17 per unit of risk. If you would invest 80,757 in Schlumberger Limited on September 2, 2024 and sell it today you would earn a total of 9,596 from holding Schlumberger Limited or generate 11.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schlumberger Limited vs. Bristol Myers Squibb
Performance |
| Timeline |
| Schlumberger Limited |
| Bristol Myers Squibb |
Schlumberger and Bristol Myers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schlumberger and Bristol Myers
The main advantage of trading using opposite Schlumberger and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schlumberger 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 Schlumberger Limited 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. 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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