Correlation Between Bristol Myers and China Mengniu

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

Diversification Opportunities for Bristol Myers and China Mengniu

0.23

Correlation Coefficient

Bristol Myers  China Mengniu

Modest diversification

The 3 months correlation between Bristol and China is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and China Mengniu Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mengniu Dairy 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 China Mengniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mengniu Dairy has no effect on the direction of Bristol Myers i.e., Bristol Myers and China Mengniu go up and down completely randomly.

Pair Corralation between Bristol Myers and China Mengniu

Considering the 90-day investment horizon Bristol Myers is expected to generate 1.64 times less return on investment than China Mengniu. But when comparing it to its historical volatility, Bristol Myers Squibb is 2.55 times less risky than China Mengniu. It trades about 0.11 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,983  in China Mengniu Dairy on September 24, 2024 and sell it today you would earn a total of  312.00  from holding China Mengniu Dairy or generate 15.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Bristol Myers Squibb  vs.  China Mengniu Dairy

Bristol Myers Squibb

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady primary indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

China Mengniu Dairy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bristol Myers and China Mengniu

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

The idea behind Bristol Myers Squibb and China Mengniu Dairy 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.