Correlation Between Nike and Bausch Lomb

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

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

Diversification Opportunities for Nike and Bausch Lomb

-0.16

Correlation Coefficient

Nike  Bausch Lomb

Good diversification

The 3 months correlation between Nike and Bausch is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Bausch Lomb Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Lomb Corp and Nike 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 Nike Inc are associated (or correlated) with Bausch Lomb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Lomb Corp has no effect on the direction of Nike i.e., Nike and Bausch Lomb go up and down completely randomly.

Pair Corralation between Nike and Bausch Lomb

Considering the 90-day investment horizon Nike Inc is expected to generate 0.63 times more return on investment than Bausch Lomb. However, Nike Inc is 1.58 times less risky than Bausch Lomb. It trades about 0.07 of its potential returns per unit of risk. Bausch Lomb Corp is currently generating about -0.33 per unit of risk. If you would invest  9,256  in Nike Inc on January 30, 2024 and sell it today you would earn a total of  156.00  from holding Nike Inc or generate 1.69% return on investment over 90 days.

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

Nike Inc  vs.  Bausch Lomb Corp

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Bausch Lomb Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bausch Lomb Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Bausch Lomb is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nike and Bausch Lomb

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

The idea behind Nike Inc and Bausch Lomb Corp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..