Correlation Between Bristol Myers and Japan Steel

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

Diversification Opportunities for Bristol Myers and Japan Steel

0.73

Correlation Coefficient

Bristol Myers  Japan Steel

Poor diversification

The 3 months correlation between Bristol and Japan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and The Japan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Steel 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 Japan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Steel has no effect on the direction of Bristol Myers i.e., Bristol Myers and Japan Steel go up and down completely randomly.

Pair Corralation between Bristol Myers and Japan Steel

If you would invest  73,550  in Bristol Myers Squibb on September 18, 2024 and sell it today you would earn a total of  19,605  from holding Bristol Myers Squibb or generate 26.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	11.29%
Values	Daily Returns

Bristol Myers Squibb  vs.  The Japan Steel

Bristol Myers Squibb

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 10 (%) 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.

Japan Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Japan Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Steel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bristol Myers and Japan Steel

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

The idea behind Bristol Myers Squibb and The Japan Steel 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.