Correlation Between Bausch and Bowhead Specialty

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

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

Diversification Opportunities for Bausch and Bowhead Specialty

0.55

Correlation Coefficient

Bausch  Bowhead Specialty

Very weak diversification

The 3 months correlation between Bausch and Bowhead is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and Bausch 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 Bausch Health Companies are associated (or correlated) with Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of Bausch i.e., Bausch and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Bausch and Bowhead Specialty

Assuming the 90 days trading horizon Bausch is expected to generate 1.3 times less return on investment than Bowhead Specialty. In addition to that, Bausch is 1.12 times more volatile than Bowhead Specialty Holdings. It trades about 0.07 of its total potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.1 per unit of volatility. If you would invest  2,951  in Bowhead Specialty Holdings on October 24, 2024 and sell it today you would earn a total of  329.00  from holding Bowhead Specialty Holdings or generate 11.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	32.2%
Values	Daily Returns

Bausch Health Companies  vs.  Bowhead Specialty Holdings

Bausch Health Companies

Risk-Adjusted Performance

5 of 100

Modest

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

Bowhead Specialty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Bowhead Specialty may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bausch and Bowhead Specialty

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

The idea behind Bausch Health Companies and Bowhead Specialty Holdings 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.