Correlation Between Bristol Myers and Vulcan Energy

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

Diversification Opportunities for Bristol Myers and Vulcan Energy

0.81

Correlation Coefficient

Bristol Myers  Vulcan Energy

Very poor diversification

The 3 months correlation between Bristol and Vulcan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Vulcan Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Energy Resources 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 Vulcan Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Energy Resources has no effect on the direction of Bristol Myers i.e., Bristol Myers and Vulcan Energy go up and down completely randomly.

Pair Corralation between Bristol Myers and Vulcan Energy

Assuming the 90 days horizon Bristol Myers is expected to generate 1.72 times less return on investment than Vulcan Energy. But when comparing it to its historical volatility, Bristol Myers Squibb is 2.8 times less risky than Vulcan Energy. It trades about 0.16 of its potential returns per unit of risk. Vulcan Energy Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  266.00  in Vulcan Energy Resources on September 25, 2024 and sell it today you would earn a total of  94.00  from holding Vulcan Energy Resources or generate 35.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Bristol Myers Squibb  vs.  Vulcan Energy Resources

Bristol Myers Squibb

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 12 (%) 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.

Vulcan Energy Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Vulcan Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bristol Myers and Vulcan Energy

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

The idea behind Bristol Myers Squibb and Vulcan Energy Resources 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.