Correlation Between Merck and Bayer Aktiengesellscha

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

By analyzing existing cross correlation between Merck Co and Bayer Aktiengesellschaft, you can compare the effects of market volatilities on Merck and Bayer Aktiengesellscha 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 Bayer Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Bayer Aktiengesellscha.

Diversification Opportunities for Merck and Bayer Aktiengesellscha

-0.49

Correlation Coefficient

Merck  Bayer Aktiengesellscha

Very good diversification

The 3 months correlation between Merck and Bayer is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Bayer Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer Aktiengesellschaft 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 Co are associated (or correlated) with Bayer Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer Aktiengesellschaft has no effect on the direction of Merck i.e., Merck and Bayer Aktiengesellscha go up and down completely randomly.

Pair Corralation between Merck and Bayer Aktiengesellscha

Assuming the 90 days horizon Merck Co is expected to under-perform the Bayer Aktiengesellscha. But the stock apears to be less risky and, when comparing its historical volatility, Merck Co is 2.25 times less risky than Bayer Aktiengesellscha. The stock trades about -0.11 of its potential returns per unit of risk. The Bayer Aktiengesellschaft is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  496.00  in Bayer Aktiengesellschaft on December 28, 2024 and sell it today you would earn a total of  79.00  from holding Bayer Aktiengesellschaft or generate 15.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Merck Co  vs.  Bayer Aktiengesellschaft

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Bayer Aktiengesellschaft

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer Aktiengesellschaft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bayer Aktiengesellscha reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Bayer Aktiengesellscha

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

The idea behind Merck Co and Bayer Aktiengesellschaft 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.