Correlation Between Amgen and Booz Allen

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

By analyzing existing cross correlation between Amgen Inc and Booz Allen Hamilton, you can compare the effects of market volatilities on Amgen and Booz Allen 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 Amgen with a short position of Booz Allen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amgen and Booz Allen.

Diversification Opportunities for Amgen and Booz Allen

0.86

Correlation Coefficient

Amgen  Booz Allen

Very poor diversification

The 3 months correlation between Amgen and Booz is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Booz Allen Hamilton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booz Allen Hamilton and Amgen 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 Amgen Inc are associated (or correlated) with Booz Allen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Booz Allen Hamilton has no effect on the direction of Amgen i.e., Amgen and Booz Allen go up and down completely randomly.

Pair Corralation between Amgen and Booz Allen

Given the investment horizon of 90 days Amgen Inc is expected to generate 1.5 times more return on investment than Booz Allen. However, Amgen is 1.5 times more volatile than Booz Allen Hamilton. It trades about 0.11 of its potential returns per unit of risk. Booz Allen Hamilton is currently generating about 0.06 per unit of risk. If you would invest  27,182  in Amgen Inc on March 8, 2024 and sell it today you would earn a total of  3,556  from holding Amgen Inc or generate 13.08% return on investment over 90 days.

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

Amgen Inc  vs.  Booz Allen Hamilton

Amgen Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Amgen displayed solid returns over the last few months and may actually be approaching a breakup point.

Booz Allen Hamilton

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Booz Allen Hamilton are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Booz Allen is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Amgen and Booz Allen

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

The idea behind Amgen Inc and Booz Allen Hamilton 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.