Correlation Between Johnson Johnson and Bristol Myers

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

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

Diversification Opportunities for Johnson Johnson and Bristol Myers

0.03

Correlation Coefficient

Johnson Johnson  Bristol Myers

Significant diversification

The 3 months correlation between Johnson and Bristol is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson 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 Johnson Johnson 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 Johnson Johnson 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 Johnson Johnson i.e., Johnson Johnson and Bristol Myers go up and down completely randomly.

Pair Corralation between Johnson Johnson and Bristol Myers

Assuming the 90 days trading horizon Johnson Johnson is expected to under-perform the Bristol Myers. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.27 times less risky than Bristol Myers. The stock trades about -0.36 of its potential returns per unit of risk. The Bristol Myers Squibb is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  5,100  in Bristol Myers Squibb on January 21, 2024 and sell it today you would lose (207.00) from holding Bristol Myers Squibb or give up 4.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Johnson Johnson  vs.  Bristol Myers Squibb

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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

Pair Trading with Johnson Johnson and Bristol Myers

The main advantage of trading using opposite Johnson Johnson and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson 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 Johnson Johnson 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.