Correlation Between Bayer AG and Amgen

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

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

Diversification Opportunities for Bayer AG and Amgen

0.74

Correlation Coefficient

Bayer AG  Amgen

Poor diversification

The 3 months correlation between Bayer and Amgen is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc and Bayer AG 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 AG NA are associated (or correlated) with Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Bayer AG i.e., Bayer AG and Amgen go up and down completely randomly.

Pair Corralation between Bayer AG and Amgen

Assuming the 90 days trading horizon Bayer AG NA is expected to generate 1.54 times more return on investment than Amgen. However, Bayer AG is 1.54 times more volatile than Amgen Inc. It trades about 0.23 of its potential returns per unit of risk. Amgen Inc is currently generating about 0.18 per unit of risk. If you would invest  1,887  in Bayer AG NA on December 21, 2024 and sell it today you would earn a total of  598.00  from holding Bayer AG NA or generate 31.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Bayer AG NA  vs.  Amgen Inc

Bayer AG NA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG NA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bayer AG reported solid returns over the last few months and may actually be approaching a breakup point.

Amgen Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amgen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bayer AG and Amgen

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

The idea behind Bayer AG NA and Amgen Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.