Correlation Between Western Digital and Bausch

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

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

Diversification Opportunities for Western Digital and Bausch

0.3

Correlation Coefficient

Western Digital  Bausch

Weak diversification

The 3 months correlation between Western and Bausch is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Bausch Health Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Health Companies and Western Digital 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 Western Digital are associated (or correlated) with Bausch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Health Companies has no effect on the direction of Western Digital i.e., Western Digital and Bausch go up and down completely randomly.

Pair Corralation between Western Digital and Bausch

Considering the 90-day investment horizon Western Digital is expected to under-perform the Bausch. In addition to that, Western Digital is 1.7 times more volatile than Bausch Health Companies. It trades about -0.13 of its total potential returns per unit of risk. Bausch Health Companies is currently generating about -0.2 per unit of volatility. If you would invest  5,766  in Bausch Health Companies on October 8, 2024 and sell it today you would lose (253.00) from holding Bausch Health Companies or give up 4.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.68%
Values	Daily Returns

Western Digital  vs.  Bausch Health Companies

Western Digital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bausch is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Digital and Bausch

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

The idea behind Western Digital and Bausch Health Companies 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.