Correlation Between Bank of America and Bausch

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

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

Diversification Opportunities for Bank of America and Bausch

0.94

Correlation Coefficient

Bank of America  Bausch

Almost no diversification

The 3 months correlation between Bank and Bausch is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Bausch go up and down completely randomly.

Pair Corralation between Bank of America and Bausch

Considering the 90-day investment horizon Bank of America is expected to generate 0.71 times more return on investment than Bausch. However, Bank of America is 1.41 times less risky than Bausch. It trades about 0.18 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  3,888  in Bank of America on September 14, 2024 and sell it today you would earn a total of  720.00  from holding Bank of America or generate 18.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	39.68%
Values	Daily Returns

Bank of America  vs.  Bausch Health Companies

Bank of America

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Bank of America exhibited 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 Bank of America and Bausch

The main advantage of trading using opposite Bank of America and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America 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.