Correlation Between Bausch Health and HOME DEPOT

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

Diversification Opportunities for Bausch Health and HOME DEPOT

-0.13

Correlation Coefficient

Bausch Health  HOME DEPOT

Good diversification

The 3 months correlation between Bausch and HOME is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and HOME DEPOT CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT CDR 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 HOME DEPOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOME DEPOT CDR has no effect on the direction of Bausch Health i.e., Bausch Health and HOME DEPOT go up and down completely randomly.

Pair Corralation between Bausch Health and HOME DEPOT

Assuming the 90 days trading horizon Bausch Health Companies is expected to generate 2.71 times more return on investment than HOME DEPOT. However, Bausch Health is 2.71 times more volatile than HOME DEPOT CDR. It trades about -0.04 of its potential returns per unit of risk. HOME DEPOT CDR is currently generating about -0.32 per unit of risk. If you would invest  1,113  in Bausch Health Companies on September 24, 2024 and sell it today you would lose (42.00) from holding Bausch Health Companies or give up 3.77% of portfolio value over 90 days.

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

Bausch Health Companies  vs.  HOME DEPOT CDR

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

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 very healthy fundamental indicators, Bausch Health is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

HOME DEPOT CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HOME DEPOT CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HOME DEPOT is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bausch Health and HOME DEPOT

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

The idea behind Bausch Health Companies and HOME DEPOT CDR 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.