Correlation Between Bausch and Pure Cycle

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

Diversification Opportunities for Bausch and Pure Cycle

0.72

Correlation Coefficient

Bausch  Pure Cycle

Poor diversification

The 3 months correlation between Bausch and Pure is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Pure Cycle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Cycle 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 Pure Cycle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Cycle has no effect on the direction of Bausch i.e., Bausch and Pure Cycle go up and down completely randomly.

Pair Corralation between Bausch and Pure Cycle

Assuming the 90 days trading horizon Bausch Health Companies is expected to generate 0.33 times more return on investment than Pure Cycle. However, Bausch Health Companies is 2.99 times less risky than Pure Cycle. It trades about -0.13 of its potential returns per unit of risk. Pure Cycle is currently generating about -0.19 per unit of risk. If you would invest  7,000  in Bausch Health Companies on October 8, 2024 and sell it today you would lose (98.00) from holding Bausch Health Companies or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	57.89%
Values	Daily Returns

Bausch Health Companies  vs.  Pure Cycle

Bausch Health Companies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bausch sustained solid returns over the last few months and may actually be approaching a breakup point.

Pure Cycle

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Cycle are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Pure Cycle displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch and Pure Cycle

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

The idea behind Bausch Health Companies and Pure Cycle 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.