Correlation Between Bank of America and Bristol Myers

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

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

Diversification Opportunities for Bank of America and Bristol Myers

0.33

Correlation Coefficient

Bank of America  Bristol Myers

Weak diversification

The 3 months correlation between Bank and Bristol is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Bristol Myers go up and down completely randomly.

Pair Corralation between Bank of America and Bristol Myers

Considering the 90-day investment horizon Bank of America is expected to generate 0.79 times more return on investment than Bristol Myers. However, Bank of America is 1.26 times less risky than Bristol Myers. It trades about 0.03 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.35 per unit of risk. If you would invest  3,752  in Bank of America on January 29, 2024 and sell it today you would earn a total of  31.00  from holding Bank of America or generate 0.83% return on investment over 90 days.

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

Bank of America  vs.  Bristol Myers Squibb

Bank of America

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 latest sluggish performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of America and Bristol Myers

The main advantage of trading using opposite Bank of America and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.