Correlation Between Bausch and Cincinnati Financial

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

Diversification Opportunities for Bausch and Cincinnati Financial

0.61

Correlation Coefficient

Bausch  Cincinnati Financial

Poor diversification

The 3 months correlation between Bausch and Cincinnati is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial 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 Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of Bausch i.e., Bausch and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Bausch and Cincinnati Financial

Assuming the 90 days trading horizon Bausch Health Companies is expected to under-perform the Cincinnati Financial. In addition to that, Bausch is 1.32 times more volatile than Cincinnati Financial. It trades about -0.71 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about -0.28 per unit of volatility. If you would invest  15,278  in Cincinnati Financial on October 9, 2024 and sell it today you would lose (1,103) from holding Cincinnati Financial or give up 7.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	30.0%
Values	Daily Returns

Bausch Health Companies  vs.  Cincinnati Financial

Bausch Health Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Bausch may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cincinnati Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bausch and Cincinnati Financial

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

The idea behind Bausch Health Companies and Cincinnati Financial 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.