Correlation Between NYSE Composite and Bausch

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

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

Diversification Opportunities for NYSE Composite and Bausch

-0.17

Correlation Coefficient

NYSE Composite  Bausch

Good diversification

The 3 months correlation between NYSE and Bausch is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Bausch go up and down completely randomly.

Pair Corralation between NYSE Composite and Bausch

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.79 times less return on investment than Bausch. But when comparing it to its historical volatility, NYSE Composite is 6.63 times less risky than Bausch. It trades about 0.09 of its potential returns per unit of risk. Bausch Health Companies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,355  in Bausch Health Companies on October 22, 2024 and sell it today you would earn a total of  295.00  from holding Bausch Health Companies or generate 6.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	44.13%
Values	Daily Returns

NYSE Composite  vs.  Bausch Health Companies

Pair Trading with NYSE Composite and Bausch

The main advantage of trading using opposite NYSE Composite and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.