Correlation Between Bristol Myers and Verizon Communications

Can any of the company-specific risk be diversified away by investing in both Bristol Myers and Verizon Communications 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 Verizon Communications 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 Verizon Communications, you can compare the effects of market volatilities on Bristol Myers and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bristol Myers and Verizon Communications.

Diversification Opportunities for Bristol Myers and Verizon Communications

0.41

Correlation Coefficient

Bristol Myers  Verizon Communications

Very weak diversification

The 3 months correlation between Bristol and Verizon is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Bristol Myers i.e., Bristol Myers and Verizon Communications go up and down completely randomly.

Pair Corralation between Bristol Myers and Verizon Communications

Assuming the 90 days trading horizon Bristol Myers Squibb is expected to generate 1.14 times more return on investment than Verizon Communications. However, Bristol Myers is 1.14 times more volatile than Verizon Communications. It trades about 0.15 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.07 per unit of risk. If you would invest  99,500  in Bristol Myers Squibb on September 3, 2024 and sell it today you would earn a total of  22,700  from holding Bristol Myers Squibb or generate 22.81% return on investment over 90 days.

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

Bristol Myers Squibb  vs.  Verizon Communications

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. In spite of fairly weak basic indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

Verizon Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bristol Myers and Verizon Communications

The main advantage of trading using opposite Bristol Myers and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.

The idea behind Bristol Myers Squibb and Verizon Communications 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.