Correlation Between Bausch Health and Verona Pharma

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

Diversification Opportunities for Bausch Health and Verona Pharma

-0.58

Correlation Coefficient

Bausch Health  Verona Pharma

Excellent diversification

The 3 months correlation between Bausch and Verona is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC 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 Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Bausch Health i.e., Bausch Health and Verona Pharma go up and down completely randomly.

Pair Corralation between Bausch Health and Verona Pharma

Considering the 90-day investment horizon Bausch Health Companies is expected to under-perform the Verona Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Bausch Health Companies is 1.31 times less risky than Verona Pharma. The stock trades about -0.04 of its potential returns per unit of risk. The Verona Pharma PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,619  in Verona Pharma PLC on December 27, 2024 and sell it today you would earn a total of  1,799  from holding Verona Pharma PLC or generate 38.95% 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.  Verona Pharma PLC

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 latest uncertain performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Verona Pharma PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch Health and Verona Pharma

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

The idea behind Bausch Health Companies and Verona Pharma PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.