Correlation Between Bausch and Dow Jones

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

Diversification Opportunities for Bausch and Dow Jones

0.56

Correlation Coefficient

Bausch  Dow Jones

Very weak diversification

The 3 months correlation between Bausch and Dow is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Bausch i.e., Bausch and Dow Jones go up and down completely randomly.

Pair Corralation between Bausch and Dow Jones

Assuming the 90 days trading horizon Bausch Health Companies is expected to generate 1.85 times more return on investment than Dow Jones. However, Bausch is 1.85 times more volatile than Dow Jones Industrial. It trades about 0.08 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.03 per unit of risk. If you would invest  6,075  in Bausch Health Companies on September 24, 2024 and sell it today you would earn a total of  329.00  from holding Bausch Health Companies or generate 5.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	79.69%
Values	Daily Returns

Bausch Health Companies  vs.  Dow Jones Industrial

Pair Trading with Bausch and Dow Jones

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

The idea behind Bausch Health Companies and Dow Jones Industrial 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.