Correlation Between Diageo PLC and Bausch

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

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

Diversification Opportunities for Diageo PLC and Bausch

-0.79

Correlation Coefficient

Diageo PLC  Bausch

Pay attention - limited upside

The 3 months correlation between Diageo and Bausch is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR 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 Diageo PLC 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 Diageo PLC ADR 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 Diageo PLC i.e., Diageo PLC and Bausch go up and down completely randomly.

Pair Corralation between Diageo PLC and Bausch

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Bausch. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.52 times less risky than Bausch. The stock trades about -0.04 of its potential returns per unit of risk. The Bausch Health Companies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,675  in Bausch Health Companies on September 14, 2024 and sell it today you would earn a total of  115.00  from holding Bausch Health Companies or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	39.68%
Values	Daily Returns

Diageo PLC ADR  vs.  Bausch Health Companies

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Bausch Health Companies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bausch is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Bausch

The main advantage of trading using opposite Diageo PLC and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC 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 Diageo PLC ADR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.