Correlation Between Bristol Myers and Johnson Johnson

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

Diversification Opportunities for Bristol Myers and Johnson Johnson

0.06
  Correlation Coefficient

Significant diversification

The 1 month correlation between Bristol and Johnson is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Bristol-Myers Squibb and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson 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 Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Bristol Myers i.e., Bristol Myers and Johnson Johnson go up and down completely randomly.

Pair Corralation between Bristol Myers and Johnson Johnson

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the Johnson Johnson. In addition to that, Bristol Myers is 1.22 times more volatile than Johnson Johnson. It trades about -0.05 of its total potential returns per unit of risk. Johnson Johnson is currently generating about -0.01 per unit of volatility. If you would invest  17,334  in Johnson Johnson on December 29, 2023 and sell it today you would lose (1,538) from holding Johnson Johnson or give up 8.87% of portfolio value over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Bristol-Myers Squibb  vs.  Johnson Johnson

 Performance 
       Timeline  
Bristol-Myers Squibb 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.
Johnson Johnson 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Bristol Myers and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bristol Myers and Johnson Johnson

The main advantage of trading using opposite Bristol Myers and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers position performs unexpectedly, Johnson Johnson 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 Johnson Johnson will offset losses from the drop in Johnson Johnson's long position.
The idea behind Bristol Myers Squibb and Johnson Johnson 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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