Correlation Between American Cannabis and Bristol Myers

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

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

Diversification Opportunities for American Cannabis and Bristol Myers

-0.57

Correlation Coefficient

American Cannabis  Bristol Myers

Excellent diversification

The 3 months correlation between American and Bristol is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding American Cannabis 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 American Cannabis 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 American Cannabis 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 American Cannabis i.e., American Cannabis and Bristol Myers go up and down completely randomly.

Pair Corralation between American Cannabis and Bristol Myers

Given the investment horizon of 90 days American Cannabis is expected to generate 14.26 times more return on investment than Bristol Myers. However, American Cannabis is 14.26 times more volatile than Bristol Myers Squibb. It trades about 0.15 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.04 per unit of risk. If you would invest  0.70  in American Cannabis on September 27, 2024 and sell it today you would lose (0.60) from holding American Cannabis or give up 85.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

American Cannabis  vs.  Bristol Myers Squibb

American Cannabis

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Cannabis are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, American Cannabis revealed solid returns over the last few months and may actually be approaching a breakup point.

Bristol Myers Squibb

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Bristol Myers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Cannabis and Bristol Myers

The main advantage of trading using opposite American Cannabis and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Cannabis 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 American Cannabis 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.