Correlation Between Renoworks Software and Bausch Health

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

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

Diversification Opportunities for Renoworks Software and Bausch Health

-0.01

Correlation Coefficient

Renoworks Software  Bausch Health

Good diversification

The 3 months correlation between Renoworks and Bausch is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Renoworks Software 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 Renoworks Software 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 Renoworks Software 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 Renoworks Software i.e., Renoworks Software and Bausch Health go up and down completely randomly.

Pair Corralation between Renoworks Software and Bausch Health

Given the investment horizon of 90 days Renoworks Software is expected to generate 1.25 times more return on investment than Bausch Health. However, Renoworks Software is 1.25 times more volatile than Bausch Health Companies. It trades about 0.07 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  24.00  in Renoworks Software on October 17, 2024 and sell it today you would earn a total of  3.00  from holding Renoworks Software or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Renoworks Software  vs.  Bausch Health Companies

Renoworks Software

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Renoworks Software are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Renoworks Software showed solid returns over the last few months and may actually be approaching a breakup point.

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. 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 Renoworks Software and Bausch Health

The main advantage of trading using opposite Renoworks Software and Bausch Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renoworks Software 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 Renoworks Software 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.