Correlation Between Bausch Health and Microsoft Corp

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

Diversification Opportunities for Bausch Health and Microsoft Corp

-0.42

Correlation Coefficient

Bausch Health  Microsoft Corp

Very good diversification

The 3 months correlation between Bausch and Microsoft is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp CDR 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 Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp CDR has no effect on the direction of Bausch Health i.e., Bausch Health and Microsoft Corp go up and down completely randomly.

Pair Corralation between Bausch Health and Microsoft Corp

Assuming the 90 days trading horizon Bausch Health is expected to generate 4.38 times less return on investment than Microsoft Corp. In addition to that, Bausch Health is 2.37 times more volatile than Microsoft Corp CDR. It trades about 0.0 of its total potential returns per unit of risk. Microsoft Corp CDR is currently generating about 0.01 per unit of volatility. If you would invest  3,191  in Microsoft Corp CDR on September 20, 2024 and sell it today you would earn a total of  4.00  from holding Microsoft Corp CDR or generate 0.13% return on investment over 90 days.

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

Bausch Health Companies  vs.  Microsoft Corp CDR

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 latest stock price disarray, may contribute to short-term losses for the investors.

Microsoft Corp CDR

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with Bausch Health and Microsoft Corp

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

The idea behind Bausch Health Companies and Microsoft Corp CDR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..