Correlation Between Fast Retailing and Bausch Health

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and Bausch Health 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 Fast Retailing and Bausch Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fast Retailing Co and Bausch Health Companies, you can compare the effects of market volatilities on Fast Retailing and Bausch Health 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 Fast Retailing with a short position of Bausch Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Bausch Health.

Diversification Opportunities for Fast Retailing and Bausch Health

-0.26

Correlation Coefficient

Fast Retailing  Bausch Health

Very good diversification

The 3 months correlation between Fast and Bausch is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Bausch Health Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Health Companies and Fast Retailing 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 Fast Retailing Co are associated (or correlated) with Bausch Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Health Companies has no effect on the direction of Fast Retailing i.e., Fast Retailing and Bausch Health go up and down completely randomly.

Pair Corralation between Fast Retailing and Bausch Health

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.6 times more return on investment than Bausch Health. However, Fast Retailing Co is 1.67 times less risky than Bausch Health. It trades about -0.03 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.03 per unit of risk. If you would invest  32,520  in Fast Retailing Co on September 21, 2024 and sell it today you would lose (1,000.00) from holding Fast Retailing Co or give up 3.08% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Bausch Health Companies

Fast Retailing

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Fast Retailing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bausch Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and Bausch Health

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

The idea behind Fast Retailing Co and Bausch Health Companies 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.