Correlation Between Citigroup and Bausch

Can any of the company-specific risk be diversified away by investing in both Citigroup and Bausch 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 Citigroup and Bausch into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and Bausch Health Companies, you can compare the effects of market volatilities on Citigroup and Bausch 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 Citigroup with a short position of Bausch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Bausch.

Diversification Opportunities for Citigroup and Bausch

0.78

Correlation Coefficient

Citigroup  Bausch

Poor diversification

The 3 months correlation between Citigroup and Bausch is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Bausch Health Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Health Companies and Citigroup 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 Citigroup are associated (or correlated) with Bausch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Health Companies has no effect on the direction of Citigroup i.e., Citigroup and Bausch go up and down completely randomly.

Pair Corralation between Citigroup and Bausch

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Bausch. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 1.58 times less risky than Bausch. The stock trades about -0.2 of its potential returns per unit of risk. The Bausch Health Companies is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest  7,100  in Bausch Health Companies on December 4, 2024 and sell it today you would earn a total of  1,050  from holding Bausch Health Companies or generate 14.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	42.86%
Values	Daily Returns

Citigroup  vs.  Bausch Health Companies

Citigroup

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Bausch Health Companies

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bausch sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Bausch

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

The idea behind Citigroup and Bausch Health Companies 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.