Correlation Between Exxon and Bristol Myers

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Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Bristol Myers Squibb, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Bristol Myers.

Diversification Opportunities for Exxon and Bristol Myers

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Exxon and Bristol is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp 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 Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Bristol Myers go up and down completely randomly.

Pair Corralation between Exxon and Bristol Myers

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.64 times more return on investment than Bristol Myers. However, Exxon Mobil Corp is 1.56 times less risky than Bristol Myers. It trades about 0.6 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.21 per unit of risk. If you would invest  10,403  in Exxon Mobil Corp on December 29, 2023 and sell it today you would earn a total of  1,094  from holding Exxon Mobil Corp or generate 10.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Bristol-Myers Squibb

 Performance 
       Timeline  
Exxon Mobil Corp 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.
Bristol-Myers Squibb 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Bristol Myers is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Exxon and Bristol Myers Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and Bristol Myers

The main advantage of trading using opposite Exxon and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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.
Check out your portfolio center.
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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