Correlation Between Bristol Myers and Microsoft

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

Diversification Opportunities for Bristol Myers and Microsoft

0.03

Correlation Coefficient

Bristol Myers  Microsoft

Significant diversification

The 3 months correlation between Bristol and Microsoft is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Bristol Myers i.e., Bristol Myers and Microsoft go up and down completely randomly.

Pair Corralation between Bristol Myers and Microsoft

Assuming the 90 days horizon Bristol Myers Squibb is expected to generate 2.65 times more return on investment than Microsoft. However, Bristol Myers is 2.65 times more volatile than Microsoft. It trades about 0.15 of its potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of risk. If you would invest  73,550  in Bristol Myers Squibb on September 15, 2024 and sell it today you would earn a total of  23,050  from holding Bristol Myers Squibb or generate 31.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Bristol Myers Squibb  vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bristol Myers and Microsoft

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

The idea behind Bristol Myers Squibb and Microsoft 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.