Correlation Between Bristol Myers and GlaxoSmithKline PLC

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

Diversification Opportunities for Bristol Myers and GlaxoSmithKline PLC

0.69

Correlation Coefficient

Bristol Myers  GlaxoSmithKline PLC

Poor diversification

The 3 months correlation between Bristol and GlaxoSmithKline is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Bristol Myers i.e., Bristol Myers and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Bristol Myers and GlaxoSmithKline PLC

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the GlaxoSmithKline PLC. In addition to that, Bristol Myers is 1.25 times more volatile than GlaxoSmithKline PLC ADR. It trades about -0.19 of its total potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about -0.17 per unit of volatility. If you would invest  4,283  in GlaxoSmithKline PLC ADR on January 25, 2024 and sell it today you would lose (159.00) from holding GlaxoSmithKline PLC ADR or give up 3.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bristol Myers Squibb  vs.  GlaxoSmithKline PLC ADR

Bristol Myers Squibb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bristol Myers Squibb has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Bristol Myers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, GlaxoSmithKline PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Bristol Myers and GlaxoSmithKline PLC

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

The idea behind Bristol Myers Squibb and GlaxoSmithKline PLC ADR 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 Stocks Directory module to find actively traded stocks across global markets.