Correlation Between Bausch Health and Tarsus Pharmaceuticals

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

Diversification Opportunities for Bausch Health and Tarsus Pharmaceuticals

0.47

Correlation Coefficient

Bausch Health  Tarsus Pharmaceuticals

Very weak diversification

The 3 months correlation between Bausch and Tarsus is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Tarsus Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarsus Pharmaceuticals 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 Tarsus Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarsus Pharmaceuticals has no effect on the direction of Bausch Health i.e., Bausch Health and Tarsus Pharmaceuticals go up and down completely randomly.

Pair Corralation between Bausch Health and Tarsus Pharmaceuticals

Considering the 90-day investment horizon Bausch Health is expected to generate 2.16 times less return on investment than Tarsus Pharmaceuticals. In addition to that, Bausch Health is 1.23 times more volatile than Tarsus Pharmaceuticals. It trades about 0.1 of its total potential returns per unit of risk. Tarsus Pharmaceuticals is currently generating about 0.26 per unit of volatility. If you would invest  3,326  in Tarsus Pharmaceuticals on September 13, 2024 and sell it today you would earn a total of  1,888  from holding Tarsus Pharmaceuticals or generate 56.76% return on investment over 90 days.

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

Bausch Health Companies  vs.  Tarsus Pharmaceuticals

Bausch Health Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Bausch Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tarsus Pharmaceuticals

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tarsus Pharmaceuticals are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Tarsus Pharmaceuticals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch Health and Tarsus Pharmaceuticals

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

The idea behind Bausch Health Companies and Tarsus Pharmaceuticals 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.