Correlation Between Bristol Myers and Merck

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

Diversification Opportunities for Bristol Myers and Merck

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between Bristol and Merck is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Bristol Myers i.e., Bristol Myers and Merck go up and down completely randomly.

Pair Corralation between Bristol Myers and Merck

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Bristol Myers Squibb is 1.03 times less risky than Merck. The stock trades about -0.15 of its potential returns per unit of risk. The Merck Company is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  12,362  in Merck Company on January 21, 2024 and sell it today you would earn a total of  216.00  from holding Merck Company or generate 1.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Bristol Myers Squibb  vs.  Merck Company

 Performance 
       Timeline  
Bristol Myers Squibb 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 newest stock price disturbance, may contribute to short-term losses for the investors.
Merck Company 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Bristol Myers and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bristol Myers and Merck

The main advantage of trading using opposite Bristol Myers and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.
The idea behind Bristol Myers Squibb and Merck Company 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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