Correlation Between Bausch Health and Diversified Royalty

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

Diversification Opportunities for Bausch Health and Diversified Royalty

0.69

Correlation Coefficient

Bausch Health  Diversified Royalty

Poor diversification

The 3 months correlation between Bausch and Diversified is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty 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 Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of Bausch Health i.e., Bausch Health and Diversified Royalty go up and down completely randomly.

Pair Corralation between Bausch Health and Diversified Royalty

Assuming the 90 days trading horizon Bausch Health Companies is expected to generate 5.82 times more return on investment than Diversified Royalty. However, Bausch Health is 5.82 times more volatile than Diversified Royalty Corp. It trades about 0.11 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about 0.15 per unit of risk. If you would invest  860.00  in Bausch Health Companies on September 13, 2024 and sell it today you would earn a total of  213.00  from holding Bausch Health Companies or generate 24.77% return on investment over 90 days.

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

Bausch Health Companies  vs.  Diversified Royalty Corp

Bausch Health Companies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Bausch Health displayed solid returns over the last few months and may actually be approaching a breakup point.

Diversified Royalty Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Royalty Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Diversified Royalty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bausch Health and Diversified Royalty

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

The idea behind Bausch Health Companies and Diversified Royalty 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.