Correlation Between Merck and Bausch Health

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Can any of the company-specific risk be diversified away by investing in both Merck 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 Merck and Bausch Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Bausch Health Companies, you can compare the effects of market volatilities on Merck 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 Merck with a short position of Bausch Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Bausch Health.

Diversification Opportunities for Merck and Bausch Health

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Merck and Bausch is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company 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 Merck 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 Merck Company 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 Merck i.e., Merck and Bausch Health go up and down completely randomly.

Pair Corralation between Merck and Bausch Health

Considering the 90-day investment horizon Merck Company is expected to generate 0.11 times more return on investment than Bausch Health. However, Merck Company is 9.33 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 -0.12 per unit of risk. If you would invest  9,360  in Merck Company on May 13, 2022 and sell it today you would lose (441.00)  from holding Merck Company or give up 4.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Bausch Health Companies

 Performance (%) 
       Timeline  
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 latest stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

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 unsteady 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 and Bausch Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Bausch Health

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

Bausch Health Companies

Pair trading matchups for Bausch Health

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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