Correlation Between Johnson Johnson and Bausch

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

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

Diversification Opportunities for Johnson Johnson and Bausch

-0.24

Correlation Coefficient

Johnson Johnson  Bausch

Very good diversification

The 3 months correlation between Johnson and Bausch is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson 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 Johnson Johnson 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 Johnson Johnson 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 Johnson Johnson i.e., Johnson Johnson and Bausch go up and down completely randomly.

Pair Corralation between Johnson Johnson and Bausch

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Bausch. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 2.81 times less risky than Bausch. The stock trades about -0.02 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  4,100  in Bausch Health Companies on October 7, 2024 and sell it today you would earn a total of  1,338  from holding Bausch Health Companies or generate 32.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.08%
Values	Daily Returns

Johnson Johnson  vs.  Bausch Health Companies

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

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

Pair Trading with Johnson Johnson and Bausch

The main advantage of trading using opposite Johnson Johnson and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson 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 Johnson Johnson 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.