Correlation Between Bausch Health and Merck

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

Diversification Opportunities for Bausch Health and Merck

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Bausch and Merck is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Bausch Health i.e., Bausch Health and Merck go up and down completely randomly.

Pair Corralation between Bausch Health and Merck

Considering the 90-day investment horizon Bausch Health Companies is expected to under-perform the Merck. In addition to that, Bausch Health is 8.59 times more volatile than Merck Company. It trades about -0.09 of its total potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of volatility. If you would invest  9,388  in Merck Company on May 15, 2022 and sell it today you would lose (286.00)  from holding Merck Company or give up 3.05% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Bausch Health Companies  vs.  Merck Company

 Performance (%) 
       Timeline  
Bausch Health Companies 
Bausch Performance
0 of 100
Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in September 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Bausch Price Channel

Merck Company 
Merck Performance
0 of 100
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Bausch Health and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bausch Health and Merck

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

Bausch Health Companies

Pair trading matchups for Bausch Health

The idea behind Bausch Health Companies and Merck Company 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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