Correlation Between Bausch Health and BridgeBio Pharma

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

Diversification Opportunities for Bausch Health and BridgeBio Pharma

-0.55

Correlation Coefficient

Bausch Health  BridgeBio Pharma

Excellent diversification

The 3 months correlation between Bausch and BridgeBio is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and BridgeBio Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BridgeBio Pharma 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 BridgeBio Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BridgeBio Pharma has no effect on the direction of Bausch Health i.e., Bausch Health and BridgeBio Pharma go up and down completely randomly.

Pair Corralation between Bausch Health and BridgeBio Pharma

Considering the 90-day investment horizon Bausch Health Companies is expected to generate 0.87 times more return on investment than BridgeBio Pharma. However, Bausch Health Companies is 1.15 times less risky than BridgeBio Pharma. It trades about 0.17 of its potential returns per unit of risk. BridgeBio Pharma is currently generating about -0.01 per unit of risk. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bausch Health Companies  vs.  BridgeBio Pharma

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.

BridgeBio Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BridgeBio Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, BridgeBio Pharma is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bausch Health and BridgeBio Pharma

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

The idea behind Bausch Health Companies and BridgeBio Pharma 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 Transaction History module to view history of all your transactions and understand their impact on performance.