Correlation Between Microsoft and Bristol Myers

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

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

Diversification Opportunities for Microsoft and Bristol Myers

0.38

Correlation Coefficient

Microsoft  Bristol Myers

Weak diversification

The 3 months correlation between Microsoft and Bristol is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Bristol Myers go up and down completely randomly.

Pair Corralation between Microsoft and Bristol Myers

Given the investment horizon of 90 days Microsoft is expected to generate 0.79 times more return on investment than Bristol Myers. However, Microsoft is 1.27 times less risky than Bristol Myers. It trades about -0.11 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.26 per unit of risk. If you would invest  42,141  in Microsoft on January 19, 2024 and sell it today you would lose (957.00) from holding Microsoft or give up 2.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Bristol Myers Squibb

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Bristol Myers

The main advantage of trading using opposite Microsoft and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.