Correlation Between Bausch Lomb and Digi International

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

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

Diversification Opportunities for Bausch Lomb and Digi International

0.33

Correlation Coefficient

Bausch Lomb  Digi International

Weak diversification

The 3 months correlation between Bausch and Digi is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Lomb Corp and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Bausch Lomb 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 Lomb Corp are associated (or correlated) with Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Bausch Lomb i.e., Bausch Lomb and Digi International go up and down completely randomly.

Pair Corralation between Bausch Lomb and Digi International

Given the investment horizon of 90 days Bausch Lomb Corp is expected to generate 0.67 times more return on investment than Digi International. However, Bausch Lomb Corp is 1.49 times less risky than Digi International. It trades about 0.06 of its potential returns per unit of risk. Digi International is currently generating about -0.13 per unit of risk. If you would invest  1,500  in Bausch Lomb Corp on February 11, 2024 and sell it today you would earn a total of  41.00  from holding Bausch Lomb Corp or generate 2.73% return on investment over 90 days.

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

Bausch Lomb Corp  vs.  Digi International

Bausch Lomb Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Lomb Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Bausch Lomb may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Digi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digi International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Bausch Lomb and Digi International

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

The idea behind Bausch Lomb Corp and Digi International 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.