Correlation Between Bristol Myers and Taro Pharmaceutical

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

Diversification Opportunities for Bristol Myers and Taro Pharmaceutical

-0.51

Correlation Coefficient

Bristol Myers  Taro Pharmaceutical

Excellent diversification

The 3 months correlation between Bristol and Taro is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Taro Pharmaceutical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taro Pharmaceutical 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 Taro Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taro Pharmaceutical has no effect on the direction of Bristol Myers i.e., Bristol Myers and Taro Pharmaceutical go up and down completely randomly.

Pair Corralation between Bristol Myers and Taro Pharmaceutical

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the Taro Pharmaceutical. In addition to that, Bristol Myers is 3.32 times more volatile than Taro Pharmaceutical Industries. It trades about -0.24 of its total potential returns per unit of risk. Taro Pharmaceutical Industries is currently generating about 0.17 per unit of volatility. If you would invest  4,097  in Taro Pharmaceutical Industries on February 5, 2024 and sell it today you would earn a total of  148.00  from holding Taro Pharmaceutical Industries or generate 3.61% return on investment over 90 days.

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

Bristol Myers Squibb  vs.  Taro Pharmaceutical Industries

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 abnormal 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.

Taro Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taro Pharmaceutical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Taro Pharmaceutical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bristol Myers and Taro Pharmaceutical

The main advantage of trading using opposite Bristol Myers and Taro Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bristol Myers position performs unexpectedly, Taro Pharmaceutical 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 Taro Pharmaceutical will offset losses from the drop in Taro Pharmaceutical's long position.

The idea behind Bristol Myers Squibb and Taro Pharmaceutical Industries 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.