Correlation Between Bausch Health and LVMH Mot

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

Diversification Opportunities for Bausch Health and LVMH Mot

-0.47

Correlation Coefficient

Bausch Health  LVMH Mot

Very good diversification

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

Pair Corralation between Bausch Health and LVMH Mot

Assuming the 90 days horizon Bausch Health Companies is expected to under-perform the LVMH Mot. In addition to that, Bausch Health is 1.79 times more volatile than LVMH Mot Hennessy. It trades about -0.13 of its total potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.03 per unit of volatility. If you would invest  60,550  in LVMH Mot Hennessy on October 7, 2024 and sell it today you would earn a total of  920.00  from holding LVMH Mot Hennessy or generate 1.52% 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.  LVMH Mot Hennessy

Bausch Health Companies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Bausch Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LVMH Mot Hennessy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bausch Health and LVMH Mot

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

The idea behind Bausch Health Companies and LVMH Mot Hennessy 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.