Correlation Between Bausch Health and Kala Pharmaceuticals

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

Diversification Opportunities for Bausch Health and Kala Pharmaceuticals

-0.68

Correlation Coefficient

Bausch Health  Kala Pharmaceuticals

Excellent diversification

The 3 months correlation between Bausch and Kala is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Kala Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kala Pharmaceuticals 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 Kala Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kala Pharmaceuticals has no effect on the direction of Bausch Health i.e., Bausch Health and Kala Pharmaceuticals go up and down completely randomly.

Pair Corralation between Bausch Health and Kala Pharmaceuticals

Considering the 90-day investment horizon Bausch Health is expected to generate 14.22 times less return on investment than Kala Pharmaceuticals. But when comparing it to its historical volatility, Bausch Health Companies is 2.28 times less risky than Kala Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. Kala Pharmaceuticals is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  546.00  in Kala Pharmaceuticals on July 27, 2024 and sell it today you would earn a total of  109.00  from holding Kala Pharmaceuticals or generate 19.96% return on investment over 90 days.

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

Bausch Health Companies  vs.  Kala Pharmaceuticals

Bausch Health Companies

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Health Companies are ranked lower than 14 (%) 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.

Kala Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kala Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Kala Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bausch Health and Kala Pharmaceuticals

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

The idea behind Bausch Health Companies and Kala Pharmaceuticals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.