Correlation Between Bausch Health and Knight Therapeutics

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

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

Diversification Opportunities for Bausch Health and Knight Therapeutics

-0.4

Correlation Coefficient

Bausch Health  Knight Therapeutics

Very good diversification

The 3 months correlation between Bausch and Knight is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Knight Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Therapeutics and Bausch Health 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 Bausch Health Companies are associated (or correlated) with Knight Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Therapeutics has no effect on the direction of Bausch Health i.e., Bausch Health and Knight Therapeutics go up and down completely randomly.

Pair Corralation between Bausch Health and Knight Therapeutics

Assuming the 90 days trading horizon Bausch Health Companies is expected to under-perform the Knight Therapeutics. In addition to that, Bausch Health is 1.56 times more volatile than Knight Therapeutics. It trades about -0.08 of its total potential returns per unit of risk. Knight Therapeutics is currently generating about 0.13 per unit of volatility. If you would invest  525.00  in Knight Therapeutics on December 30, 2024 and sell it today you would earn a total of  84.00  from holding Knight Therapeutics or generate 16.0% return on investment over 90 days.

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

Bausch Health Companies  vs.  Knight Therapeutics

Bausch Health Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Knight Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knight Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Knight Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch Health and Knight Therapeutics

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

The idea behind Bausch Health Companies and Knight Therapeutics 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.