Correlation Between Bausch Health and Johnson Johnson

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

Diversification Opportunities for Bausch Health and Johnson Johnson

0.13

Correlation Coefficient

Bausch Health  Johnson Johnson

Average diversification

The 3 months correlation between Bausch and Johnson is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson 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 Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Bausch Health i.e., Bausch Health and Johnson Johnson go up and down completely randomly.

Pair Corralation between Bausch Health and Johnson Johnson

Considering the 90-day investment horizon Bausch Health Companies is expected to generate 3.16 times more return on investment than Johnson Johnson. However, Bausch Health is 3.16 times more volatile than Johnson Johnson. It trades about 0.01 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.04 per unit of risk. If you would invest  820.00  in Bausch Health Companies on July 23, 2024 and sell it today you would lose (4.00) from holding Bausch Health Companies or give up 0.49% of portfolio value over 90 days.

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

Bausch Health Companies  vs.  Johnson Johnson

Bausch Health Companies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Bausch Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Johnson Johnson

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Bausch Health and Johnson Johnson

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

The idea behind Bausch Health Companies and Johnson Johnson 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..