Correlation Between Eisai and Bausch Health

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

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

Diversification Opportunities for Eisai and Bausch Health

-0.11

Correlation Coefficient

Eisai  Bausch Health

Good diversification

The 3 months correlation between Eisai and Bausch is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Eisai Co 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 Eisai 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 Eisai Co are associated (or correlated) with Bausch Health. 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 Eisai i.e., Eisai and Bausch Health go up and down completely randomly.

Pair Corralation between Eisai and Bausch Health

Assuming the 90 days horizon Eisai Co is expected to under-perform the Bausch Health. But the stock apears to be less risky and, when comparing its historical volatility, Eisai Co is 1.29 times less risky than Bausch Health. The stock trades about -0.2 of its potential returns per unit of risk. The Bausch Health Companies is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  760.00  in Bausch Health Companies on September 25, 2024 and sell it today you would lose (52.00) from holding Bausch Health Companies or give up 6.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Eisai Co  vs.  Bausch Health Companies

Eisai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Eisai and Bausch Health

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

The idea behind Eisai Co 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.