Correlation Between Bausch Health and Mustang Bio

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

Diversification Opportunities for Bausch Health and Mustang Bio

-0.37

Correlation Coefficient

Bausch Health  Mustang Bio

Very good diversification

The 3 months correlation between Bausch and Mustang is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Mustang Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mustang Bio 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 Mustang Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mustang Bio has no effect on the direction of Bausch Health i.e., Bausch Health and Mustang Bio go up and down completely randomly.

Pair Corralation between Bausch Health and Mustang Bio

Considering the 90-day investment horizon Bausch Health Companies is expected to generate 0.53 times more return on investment than Mustang Bio. However, Bausch Health Companies is 1.88 times less risky than Mustang Bio. It trades about 0.17 of its potential returns per unit of risk. Mustang Bio is currently generating about -0.06 per unit of risk. If you would invest  607.00  in Bausch Health Companies on September 1, 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

Bausch Health Companies  vs.  Mustang Bio

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 weak technical indicators, Bausch Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Mustang Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mustang Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bausch Health and Mustang Bio

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

The idea behind Bausch Health Companies and Mustang Bio 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..