Correlation Between Bausch Health and Otis Worldwide

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

Diversification Opportunities for Bausch Health and Otis Worldwide

0.25

Correlation Coefficient

Bausch Health  Otis Worldwide

Modest diversification

The 3 months correlation between Bausch and Otis is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Otis Worldwide Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide Corp 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide Corp has no effect on the direction of Bausch Health i.e., Bausch Health and Otis Worldwide go up and down completely randomly.

Pair Corralation between Bausch Health and Otis Worldwide

Assuming the 90 days horizon Bausch Health Companies is expected to generate 3.18 times more return on investment than Otis Worldwide. However, Bausch Health is 3.18 times more volatile than Otis Worldwide Corp. It trades about 0.03 of its potential returns per unit of risk. Otis Worldwide Corp is currently generating about 0.05 per unit of risk. If you would invest  567.00  in Bausch Health Companies on September 14, 2024 and sell it today you would earn a total of  167.00  from holding Bausch Health Companies or generate 29.45% return on investment over 90 days.

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

Bausch Health Companies  vs.  Otis Worldwide Corp

Bausch Health Companies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bausch Health reported solid returns over the last few months and may actually be approaching a breakup point.

Otis Worldwide Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Otis Worldwide Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Otis Worldwide may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bausch Health and Otis Worldwide

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

The idea behind Bausch Health Companies and Otis Worldwide Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.