Correlation Between Bausch and Compania Cervecerias

Can any of the company-specific risk be diversified away by investing in both Bausch and Compania Cervecerias 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 Compania Cervecerias 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 Compania Cervecerias Unidas, you can compare the effects of market volatilities on Bausch and Compania Cervecerias 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 Compania Cervecerias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bausch and Compania Cervecerias.

Diversification Opportunities for Bausch and Compania Cervecerias

0.83

Correlation Coefficient

Bausch  Compania Cervecerias

Very poor diversification

The 3 months correlation between Bausch and Compania is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Bausch i.e., Bausch and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Bausch and Compania Cervecerias

Assuming the 90 days trading horizon Bausch Health Companies is expected to generate 1.82 times more return on investment than Compania Cervecerias. However, Bausch is 1.82 times more volatile than Compania Cervecerias Unidas. It trades about 0.25 of its potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about 0.34 per unit of risk. If you would invest  7,130  in Bausch Health Companies on December 24, 2024 and sell it today you would earn a total of  1,020  from holding Bausch Health Companies or generate 14.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	36.07%
Values	Daily Returns

Bausch Health Companies  vs.  Compania Cervecerias Unidas

Bausch Health Companies

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Bausch sustained solid returns over the last few months and may actually be approaching a breakup point.

Compania Cervecerias

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch and Compania Cervecerias

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

The idea behind Bausch Health Companies and Compania Cervecerias Unidas 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.