Correlation Between GSK Plc and Bristol Myers

Can any of the company-specific risk be diversified away by investing in both GSK Plc and Bristol Myers 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 GSK Plc and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GSK plc and Bristol Myers Squibb, you can compare the effects of market volatilities on GSK Plc and Bristol Myers 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 GSK Plc with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of GSK Plc and Bristol Myers.

Diversification Opportunities for GSK Plc and Bristol Myers

-0.87

Correlation Coefficient

GSK Plc  Bristol Myers

Pay attention - limited upside

The 3 months correlation between GSK and Bristol is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding GSK plc and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb and GSK Plc 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 GSK plc are associated (or correlated) with Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of GSK Plc i.e., GSK Plc and Bristol Myers go up and down completely randomly.

Pair Corralation between GSK Plc and Bristol Myers

Assuming the 90 days horizon GSK plc is expected to under-perform the Bristol Myers. But the pink sheet apears to be less risky and, when comparing its historical volatility, GSK plc is 1.21 times less risky than Bristol Myers. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Bristol Myers Squibb is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  73,550  in Bristol Myers Squibb on September 16, 2024 and sell it today you would earn a total of  18,672  from holding Bristol Myers Squibb or generate 25.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

GSK plc  vs.  Bristol Myers Squibb

GSK plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GSK plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GSK Plc and Bristol Myers

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

The idea behind GSK plc and Bristol Myers Squibb 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.