Correlation Between GE Aerospace and Bausch

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

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

Diversification Opportunities for GE Aerospace and Bausch

-0.63

Correlation Coefficient

GE Aerospace  Bausch

Excellent diversification

The 3 months correlation between GE Aerospace and Bausch is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace 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 GE Aerospace 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 GE Aerospace 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 GE Aerospace i.e., GE Aerospace and Bausch go up and down completely randomly.

Pair Corralation between GE Aerospace and Bausch

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 0.3 times more return on investment than Bausch. However, GE Aerospace is 3.32 times less risky than Bausch. It trades about -0.04 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.14 per unit of risk. If you would invest  19,391  in GE Aerospace on October 20, 2024 and sell it today you would lose (1,106) from holding GE Aerospace or give up 5.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	47.54%
Values	Daily Returns

GE Aerospace  vs.  Bausch Health Companies

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, GE Aerospace is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 conflicting performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for Bausch Health Companies investors.

Pair Trading with GE Aerospace and Bausch

The main advantage of trading using opposite GE Aerospace and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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 GE Aerospace 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.