Correlation Between Bausch Health and Biomarin Pharmaceutical

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

Diversification Opportunities for Bausch Health and Biomarin Pharmaceutical

0.09

Correlation Coefficient

Bausch Health  Biomarin Pharmaceutical

Significant diversification

The 3 months correlation between Bausch and Biomarin is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Biomarin Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomarin Pharmaceutical 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 Biomarin Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomarin Pharmaceutical has no effect on the direction of Bausch Health i.e., Bausch Health and Biomarin Pharmaceutical go up and down completely randomly.

Pair Corralation between Bausch Health and Biomarin Pharmaceutical

Considering the 90-day investment horizon Bausch Health Companies is expected to under-perform the Biomarin Pharmaceutical. In addition to that, Bausch Health is 1.74 times more volatile than Biomarin Pharmaceutical. It trades about -0.03 of its total potential returns per unit of risk. Biomarin Pharmaceutical is currently generating about 0.05 per unit of volatility. If you would invest  6,603  in Biomarin Pharmaceutical on November 29, 2024 and sell it today you would earn a total of  278.00  from holding Biomarin Pharmaceutical or generate 4.21% return on investment over 90 days.

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

Bausch Health Companies  vs.  Biomarin Pharmaceutical

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 rather sound technical indicators, Bausch Health is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Biomarin Pharmaceutical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Biomarin Pharmaceutical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Biomarin Pharmaceutical 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 Biomarin Pharmaceutical

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

The idea behind Bausch Health Companies and Biomarin Pharmaceutical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.