Correlation Between Bausch Health and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Bausch Health and Costco Wholesale 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 Health and Costco Wholesale 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 Costco Wholesale Corp, you can compare the effects of market volatilities on Bausch Health and Costco Wholesale 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 Health with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bausch Health and Costco Wholesale.

Diversification Opportunities for Bausch Health and Costco Wholesale

-0.05

Correlation Coefficient

Bausch Health  Costco Wholesale

Good diversification

The 3 months correlation between Bausch and Costco is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and Bausch Health 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of Bausch Health i.e., Bausch Health and Costco Wholesale go up and down completely randomly.

Pair Corralation between Bausch Health and Costco Wholesale

Assuming the 90 days trading horizon Bausch Health is expected to generate 1.46 times less return on investment than Costco Wholesale. In addition to that, Bausch Health is 2.89 times more volatile than Costco Wholesale Corp. It trades about 0.03 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.13 per unit of volatility. If you would invest  2,095  in Costco Wholesale Corp on September 19, 2024 and sell it today you would earn a total of  2,373  from holding Costco Wholesale Corp or generate 113.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Bausch Health Companies  vs.  Costco Wholesale Corp

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. In spite of very healthy fundamental indicators, Bausch Health is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Costco Wholesale Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bausch Health and Costco Wholesale

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

The idea behind Bausch Health Companies and Costco Wholesale Corp 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.