Correlation Between Verizon Communications and Bausch Health

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

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

Diversification Opportunities for Verizon Communications and Bausch Health

-0.61

Correlation Coefficient

Verizon Communications  Bausch Health

Excellent diversification

The 3 months correlation between Verizon and Bausch is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications CDR 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 Verizon Communications 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 Verizon Communications CDR 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 Verizon Communications i.e., Verizon Communications and Bausch Health go up and down completely randomly.

Pair Corralation between Verizon Communications and Bausch Health

Assuming the 90 days trading horizon Verizon Communications CDR is expected to generate 0.34 times more return on investment than Bausch Health. However, Verizon Communications CDR is 2.96 times less risky than Bausch Health. It trades about 0.01 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.07 per unit of risk. If you would invest  1,850  in Verizon Communications CDR on September 17, 2024 and sell it today you would earn a total of  1.00  from holding Verizon Communications CDR or generate 0.05% return on investment over 90 days.

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

Verizon Communications CDR  vs.  Bausch Health Companies

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bausch Health Companies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Bausch Health displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Bausch Health

The main advantage of trading using opposite Verizon Communications and Bausch Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications CDR 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.

Check out your portfolio center.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.