Correlation Between Charles River and Bausch Health

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

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

Diversification Opportunities for Charles River and Bausch Health

0.88

Correlation Coefficient

Charles River  Bausch Health

Very poor diversification

The 3 months correlation between Charles and Bausch is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Charles River Laboratories 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 Charles River 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 Charles River Laboratories 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 Charles River i.e., Charles River and Bausch Health go up and down completely randomly.

Pair Corralation between Charles River and Bausch Health

Considering the 90-day investment horizon Charles River Laboratories is expected to generate 0.65 times more return on investment than Bausch Health. However, Charles River Laboratories is 1.55 times less risky than Bausch Health. It trades about -0.19 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.22 per unit of risk. If you would invest  26,412  in Charles River Laboratories on March 12, 2024 and sell it today you would lose (4,933) from holding Charles River Laboratories or give up 18.68% of portfolio value over 90 days.

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

Charles River Laboratories  vs.  Bausch Health Companies

Charles River Labora

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charles River Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in July 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Charles River and Bausch Health

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

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..