Correlation Between Alcoa Corp and Bausch

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

By analyzing existing cross correlation between Alcoa Corp and Bausch Health Companies, you can compare the effects of market volatilities on Alcoa Corp and Bausch 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 Alcoa Corp with a short position of Bausch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Bausch.

Diversification Opportunities for Alcoa Corp and Bausch

0.79

Correlation Coefficient

Alcoa Corp  Bausch

Poor diversification

The 3 months correlation between Alcoa and Bausch is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Bausch Health Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Health Companies and Alcoa Corp 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 Alcoa Corp are associated (or correlated) with Bausch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Health Companies has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Bausch go up and down completely randomly.

Pair Corralation between Alcoa Corp and Bausch

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.34 times more return on investment than Bausch. However, Alcoa Corp is 1.34 times more volatile than Bausch Health Companies. It trades about 0.08 of its potential returns per unit of risk. Bausch Health Companies is currently generating about 0.04 per unit of risk. If you would invest  3,442  in Alcoa Corp on September 14, 2024 and sell it today you would earn a total of  470.00  from holding Alcoa Corp or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	39.06%
Values	Daily Returns

Alcoa Corp  vs.  Bausch Health Companies

Alcoa Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Bausch Health Companies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bausch is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and Bausch

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

The idea behind Alcoa Corp and Bausch Health Companies 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.