Correlation Between Bausch Health and Sunstone Hotel

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

Diversification Opportunities for Bausch Health and Sunstone Hotel

0.23

Correlation Coefficient

Bausch Health  Sunstone Hotel

Modest diversification

The 3 months correlation between Bausch and Sunstone is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of Bausch Health i.e., Bausch Health and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Bausch Health and Sunstone Hotel

Assuming the 90 days horizon Bausch Health is expected to generate 1.27 times less return on investment than Sunstone Hotel. In addition to that, Bausch Health is 1.57 times more volatile than Sunstone Hotel Investors. It trades about 0.1 of its total potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.19 per unit of volatility. If you would invest  911.00  in Sunstone Hotel Investors on September 17, 2024 and sell it today you would earn a total of  249.00  from holding Sunstone Hotel Investors or generate 27.33% return on investment over 90 days.

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

Bausch Health Companies  vs.  Sunstone Hotel Investors

Bausch Health Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bausch Health reported solid returns over the last few months and may actually be approaching a breakup point.

Sunstone Hotel Investors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bausch Health and Sunstone Hotel

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

The idea behind Bausch Health Companies and Sunstone Hotel Investors 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.