Correlation Between SOFR and Bausch

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

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

Diversification Opportunities for SOFR and Bausch

0.89

Correlation Coefficient

SOFR  Bausch

Very poor diversification

The 3 months correlation between SOFR and Bausch is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SOFR 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 SOFR 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 SOFR 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 SOFR i.e., SOFR and Bausch go up and down completely randomly.

Pair Corralation between SOFR and Bausch

Given the investment horizon of 90 days SOFR is expected to generate 269.84 times less return on investment than Bausch. But when comparing it to its historical volatility, SOFR is 2727.88 times less risky than Bausch. It trades about 0.72 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  4,910  in Bausch Health Companies on September 23, 2024 and sell it today you would earn a total of  1,494  from holding Bausch Health Companies or generate 30.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	83.23%
Values	Daily Returns

SOFR  vs.  Bausch Health Companies

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail 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 SOFR and Bausch

The main advantage of trading using opposite SOFR and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOFR 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 SOFR 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.