Correlation Between Merck and Bausch

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

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

Diversification Opportunities for Merck and Bausch

-0.49

Correlation Coefficient

Merck  Bausch

Very good diversification

The 3 months correlation between Merck and Bausch is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company 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 Merck 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 Merck Company are associated (or correlated) with Bausch. 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 Merck i.e., Merck and Bausch go up and down completely randomly.

Pair Corralation between Merck and Bausch

Considering the 90-day investment horizon Merck Company is expected to generate 0.24 times more return on investment than Bausch. However, Merck Company is 4.16 times less risky than Bausch. It trades about -0.13 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.14 per unit of risk. If you would invest  10,859  in Merck Company on September 5, 2024 and sell it today you would lose (722.00) from holding Merck Company or give up 6.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.57%
Values	Daily Returns

Merck Company  vs.  Bausch Health Companies

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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. Despite inconsistent performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Bausch Health Companies investors.

Pair Trading with Merck and Bausch

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

The idea behind Merck Company 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.