Correlation Between Zoetis and Bausch Health

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

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

Diversification Opportunities for Zoetis and Bausch Health

-0.38

Correlation Coefficient

Zoetis  Bausch Health

Very good diversification

The 3 months correlation between Zoetis and Bausch is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Zoetis Inc 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 Zoetis 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 Zoetis Inc are associated (or correlated) with Bausch Health. 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 Zoetis i.e., Zoetis and Bausch Health go up and down completely randomly.

Pair Corralation between Zoetis and Bausch Health

Considering the 90-day investment horizon Zoetis Inc is expected to under-perform the Bausch Health. But the stock apears to be less risky and, when comparing its historical volatility, Zoetis Inc is 2.45 times less risky than Bausch Health. The stock trades about -0.05 of its potential returns per unit of risk. The Bausch Health Companies is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  607.00  in Bausch Health Companies on September 3, 2024 and sell it today you would earn a total of  230.00  from holding Bausch Health Companies or generate 37.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Zoetis Inc  vs.  Bausch Health Companies

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zoetis is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Bausch Health Companies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Bausch Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zoetis and Bausch Health

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

The idea behind Zoetis Inc 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.