Correlation Between ATT and Bausch

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

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

Diversification Opportunities for ATT and Bausch

0.85

Correlation Coefficient

ATT  Bausch

Very poor diversification

The 3 months correlation between ATT and Bausch is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc 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 ATT 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 ATT Inc 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 ATT i.e., ATT and Bausch go up and down completely randomly.

Pair Corralation between ATT and Bausch

Taking into account the 90-day investment horizon ATT is expected to generate 2.73 times less return on investment than Bausch. But when comparing it to its historical volatility, ATT Inc is 2.97 times less risky than Bausch. It trades about 0.2 of its potential returns per unit of risk. Bausch Health Companies is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,425  in Bausch Health Companies on September 14, 2024 and sell it today you would earn a total of  1,365  from holding Bausch Health Companies or generate 25.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	27.78%
Values	Daily Returns

ATT Inc  vs.  Bausch Health Companies

ATT Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bausch Health Companies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bausch is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ATT and Bausch

The main advantage of trading using opposite ATT and Bausch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.