Correlation Between Ford and Bausch

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

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

Diversification Opportunities for Ford and Bausch

-0.04

Correlation Coefficient

Ford  Bausch

Good diversification

The 3 months correlation between Ford and Bausch is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and Bausch go up and down completely randomly.

Pair Corralation between Ford and Bausch

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.85 times more return on investment than Bausch. However, Ford Motor is 1.18 times less risky than Bausch. It trades about 0.05 of its potential returns per unit of risk. Bausch Health Companies is currently generating about 0.01 per unit of risk. If you would invest  957.00  in Ford Motor on December 20, 2024 and sell it today you would earn a total of  44.00  from holding Ford Motor or generate 4.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

Ford Motor  vs.  Bausch Health Companies

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Bausch Health Companies

Risk-Adjusted Performance

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 somewhat strong basic indicators, Bausch is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Bausch

The main advantage of trading using opposite Ford and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.