Correlation Between American Express and Bausch

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Can any of the company-specific risk be diversified away by investing in both American Express 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 American Express and Bausch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Bausch Health Companies, you can compare the effects of market volatilities on American Express 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 American Express with a short position of Bausch. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Bausch.

Diversification Opportunities for American Express and Bausch

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between American and Bausch is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Express 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 American Express 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 American Express 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 American Express i.e., American Express and Bausch go up and down completely randomly.

Pair Corralation between American Express and Bausch

Considering the 90-day investment horizon American Express is expected to generate 0.69 times more return on investment than Bausch. However, American Express is 1.44 times less risky than Bausch. It trades about 0.16 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  26,041  in American Express on September 14, 2024 and sell it today you would earn a total of  4,177  from holding American Express or generate 16.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy39.06%
ValuesDaily Returns

American Express  vs.  Bausch Health Companies

 Performance 
       Timeline  
American Express 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.
Bausch Health Companies 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
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.

American Express and Bausch Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and Bausch

The main advantage of trading using opposite American Express and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express 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.
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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