Correlation Between First Trust and Bausch

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

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

Diversification Opportunities for First Trust and Bausch

0.81

Correlation Coefficient

First Trust  Bausch

Very poor diversification

The 3 months correlation between First and Bausch is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded 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 First Trust 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 First Trust Exchange Traded 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 First Trust i.e., First Trust and Bausch go up and down completely randomly.

Pair Corralation between First Trust and Bausch

Given the investment horizon of 90 days First Trust is expected to generate 1.34 times less return on investment than Bausch. But when comparing it to its historical volatility, First Trust Exchange Traded is 2.34 times less risky than Bausch. It trades about 0.12 of its potential returns per unit of risk. Bausch Health Companies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,100  in Bausch Health Companies on September 23, 2024 and sell it today you would earn a total of  304.00  from holding Bausch Health Companies or generate 4.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	80.0%
Values	Daily Returns

First Trust Exchange Traded  vs.  Bausch Health Companies

First Trust Exchange

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bausch Health Companies

Risk-Adjusted Performance

5 of 100

OK

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 unfluctuating basic indicators, Bausch may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Bausch

The main advantage of trading using opposite First Trust and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Exchange Traded 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.