Correlation Between Bausch Health and Telefonaktiebolaget
Can any of the company-specific risk be diversified away by investing in both Bausch Health and Telefonaktiebolaget 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 Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson, you can compare the effects of market volatilities on Bausch Health and Telefonaktiebolaget 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 Telefonaktiebolaget. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bausch Health and Telefonaktiebolaget.
Diversification Opportunities for Bausch Health and Telefonaktiebolaget
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bausch and Telefonaktiebolaget is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget 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 Telefonaktiebolaget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonaktiebolaget has no effect on the direction of Bausch Health i.e., Bausch Health and Telefonaktiebolaget go up and down completely randomly.
Pair Corralation between Bausch Health and Telefonaktiebolaget
Assuming the 90 days horizon Bausch Health Companies is expected to under-perform the Telefonaktiebolaget. In addition to that, Bausch Health is 1.28 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about -0.34 of its total potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about -0.03 per unit of volatility. If you would invest 779.00 in Telefonaktiebolaget LM Ericsson on September 3, 2024 and sell it today you would lose (9.00) from holding Telefonaktiebolaget LM Ericsson or give up 1.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bausch Health Companies vs. Telefonaktiebolaget LM Ericsso
Performance |
| Timeline |
| Bausch Health Companies |
| Telefonaktiebolaget |
Bausch Health and Telefonaktiebolaget Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bausch Health and Telefonaktiebolaget
The main advantage of trading using opposite Bausch Health and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bausch Health position performs unexpectedly, Telefonaktiebolaget 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 Telefonaktiebolaget will offset losses from the drop in Telefonaktiebolaget's long position.The idea behind Bausch Health Companies and Telefonaktiebolaget LM Ericsson 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.| Telefonaktiebolaget vs. GOODYEAR T RUBBER | Telefonaktiebolaget vs. Rayonier Advanced Materials | Telefonaktiebolaget vs. Sumitomo Rubber Industries | Telefonaktiebolaget vs. THRACE PLASTICS |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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