Correlation Between Naked Wines and Bausch

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

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

Diversification Opportunities for Naked Wines and Bausch

0.49

Correlation Coefficient

Naked Wines  Bausch

Very weak diversification

The 3 months correlation between Naked and Bausch is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc 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 Naked Wines 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 Naked Wines plc 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 Naked Wines i.e., Naked Wines and Bausch go up and down completely randomly.

Pair Corralation between Naked Wines and Bausch

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the Bausch. But the pink sheet apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 1.72 times less risky than Bausch. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Bausch Health Companies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,875  in Bausch Health Companies on December 22, 2024 and sell it today you would earn a total of  850.00  from holding Bausch Health Companies or generate 12.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	71.43%
Values	Daily Returns

Naked Wines plc  vs.  Bausch Health Companies

Naked Wines plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Naked Wines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bausch Health Companies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Bausch sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Bausch

The main advantage of trading using opposite Naked Wines and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naked Wines 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 Naked Wines plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.