Correlation Between Alphabet and Bristol Myers

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

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

Diversification Opportunities for Alphabet and Bristol Myers

0.64

Correlation Coefficient

Alphabet  Bristol Myers

Poor diversification

The 3 months correlation between Alphabet and Bristol is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Bristol Myers go up and down completely randomly.

Pair Corralation between Alphabet and Bristol Myers

Given the investment horizon of 90 days Alphabet is expected to generate 1.61 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.99 times less risky than Bristol Myers. It trades about 0.18 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  73,550  in Bristol Myers Squibb on September 14, 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	Significant
Accuracy	96.88%
Values	Daily Returns

Alphabet Inc Class C  vs.  Bristol Myers Squibb

Alphabet Class C

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Alphabet and Bristol Myers

The main advantage of trading using opposite Alphabet and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.