Correlation Between Bayer Aktiengesellscha and Merck

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

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

Diversification Opportunities for Bayer Aktiengesellscha and Merck

0.67

Correlation Coefficient

Bayer Aktiengesellscha  Merck

Poor diversification

The 3 months correlation between Bayer and Merck is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bayer Aktiengesellschaft and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Bayer Aktiengesellscha 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 Bayer Aktiengesellschaft 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 has no effect on the direction of Bayer Aktiengesellscha i.e., Bayer Aktiengesellscha and Merck go up and down completely randomly.

Pair Corralation between Bayer Aktiengesellscha and Merck

Assuming the 90 days trading horizon Bayer Aktiengesellschaft is expected to under-perform the Merck. In addition to that, Bayer Aktiengesellscha is 3.19 times more volatile than Merck Co. It trades about -0.11 of its total potential returns per unit of risk. Merck Co is currently generating about -0.05 per unit of volatility. If you would invest  10,324  in Merck Co on September 12, 2024 and sell it today you would lose (464.00) from holding Merck Co or give up 4.49% of portfolio value over 90 days.

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

Bayer Aktiengesellschaft  vs.  Merck Co

Bayer Aktiengesellschaft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer Aktiengesellschaft 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 basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bayer Aktiengesellscha and Merck

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

The idea behind Bayer Aktiengesellschaft and Merck Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.