Correlation Between Chatham Rock and Bausch Health

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

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

Diversification Opportunities for Chatham Rock and Bausch Health

0.23

Correlation Coefficient

Chatham Rock  Bausch Health

Modest diversification

The 3 months correlation between Chatham and Bausch is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate 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 Chatham Rock 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 Chatham Rock Phosphate are associated (or correlated) with Bausch Health. 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 Chatham Rock i.e., Chatham Rock and Bausch Health go up and down completely randomly.

Pair Corralation between Chatham Rock and Bausch Health

Assuming the 90 days horizon Chatham Rock Phosphate is expected to generate 4.37 times more return on investment than Bausch Health. However, Chatham Rock is 4.37 times more volatile than Bausch Health Companies. It trades about 0.04 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.02 per unit of risk. If you would invest  8.00  in Chatham Rock Phosphate on December 24, 2024 and sell it today you would lose (1.00) from holding Chatham Rock Phosphate or give up 12.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Chatham Rock Phosphate  vs.  Bausch Health Companies

Chatham Rock Phosphate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of very healthy fundamental indicators, Bausch Health is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Chatham Rock and Bausch Health

The main advantage of trading using opposite Chatham Rock and Bausch Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chatham Rock position performs unexpectedly, Bausch Health 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 Health will offset losses from the drop in Bausch Health's long position.

The idea behind Chatham Rock Phosphate 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.