Correlation Between Amazon and Bristol Myers

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

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

Diversification Opportunities for Amazon and Bristol Myers

0.69

Correlation Coefficient

Amazon  Bristol Myers

Poor diversification

The 3 months correlation between Amazon and Bristol is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Amazon 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 Amazon 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 Amazon 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 Amazon i.e., Amazon and Bristol Myers go up and down completely randomly.

Pair Corralation between Amazon and Bristol Myers

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.55 times more return on investment than Bristol Myers. However, Amazon is 1.55 times more volatile than Bristol Myers Squibb. It trades about 0.16 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.09 per unit of risk. If you would invest  21,410  in Amazon Inc on September 14, 2024 and sell it today you would earn a total of  1,336  from holding Amazon Inc or generate 6.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  Bristol Myers Squibb

Amazon Inc

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Bristol Myers Squibb

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 11 (%) 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 Amazon and Bristol Myers

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