Correlation Between Bristol-Myers Squibb and Alphabet

Can any of the company-specific risk be diversified away by investing in both Bristol-Myers Squibb and Alphabet 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 Squibb and Alphabet 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 Alphabet Inc Class C, you can compare the effects of market volatilities on Bristol-Myers Squibb and Alphabet 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 Squibb with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bristol-Myers Squibb and Alphabet.

Diversification Opportunities for Bristol-Myers Squibb and Alphabet

0.6

Correlation Coefficient

Bristol-Myers Squibb  Alphabet

Poor diversification

The 3 months correlation between Bristol-Myers and Alphabet is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C and Bristol-Myers Squibb 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of Bristol-Myers Squibb i.e., Bristol-Myers Squibb and Alphabet go up and down completely randomly.

Pair Corralation between Bristol-Myers Squibb and Alphabet

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 2.32 times more return on investment than Alphabet. However, Bristol-Myers Squibb is 2.32 times more volatile than Alphabet Inc Class C. It trades about 0.12 of its potential returns per unit of risk. Alphabet Inc Class C is currently generating about 0.09 per unit of risk. If you would invest  80,055  in Bristol Myers Squibb on August 31, 2024 and sell it today you would earn a total of  20,500  from holding Bristol Myers Squibb or generate 25.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Bristol Myers Squibb  vs.  Alphabet Inc Class C

Bristol Myers Squibb

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Bristol-Myers Squibb reported solid returns over the last few months and may actually be approaching a breakup point.

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Bristol-Myers Squibb and Alphabet

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

The idea behind Bristol Myers Squibb and Alphabet Inc Class C 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.