Correlation Between Bristol Myers and Eli Lilly

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

Diversification Opportunities for Bristol Myers and Eli Lilly

0.49

Correlation Coefficient

Bristol Myers  Eli Lilly

Very weak diversification

The 3 months correlation between Bristol and Eli is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bristol Myers Squibb and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly 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 Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of Bristol Myers i.e., Bristol Myers and Eli Lilly go up and down completely randomly.

Pair Corralation between Bristol Myers and Eli Lilly

Considering the 90-day investment horizon Bristol Myers Squibb is expected to under-perform the Eli Lilly. But the stock apears to be less risky and, when comparing its historical volatility, Bristol Myers Squibb is 1.51 times less risky than Eli Lilly. The stock trades about -0.09 of its potential returns per unit of risk. The Eli Lilly and is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  40,244  in Eli Lilly and on January 26, 2024 and sell it today you would earn a total of  32,976  from holding Eli Lilly and or generate 81.94% return on investment over 90 days.

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

Bristol Myers Squibb  vs.  Eli Lilly and

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 fairly strong primary indicators, Bristol Myers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Eli Lilly

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eli Lilly and are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish essential indicators, Eli Lilly showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bristol Myers and Eli Lilly

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

The idea behind Bristol Myers Squibb and Eli Lilly and 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.