Correlation Between Bayer AG and S A P

Can any of the company-specific risk be diversified away by investing in both Bayer AG and S A P 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 S A P 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 SAP SE, you can compare the effects of market volatilities on Bayer AG and S A P 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 S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and S A P.

Diversification Opportunities for Bayer AG and S A P

0.24

Correlation Coefficient

Bayer AG  S A P

Modest diversification

The 3 months correlation between Bayer and SAP is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Bayer AG i.e., Bayer AG and S A P go up and down completely randomly.

Pair Corralation between Bayer AG and S A P

Assuming the 90 days trading horizon Bayer AG NA is expected to generate 1.42 times more return on investment than S A P. However, Bayer AG is 1.42 times more volatile than SAP SE. It trades about 0.13 of its potential returns per unit of risk. SAP SE is currently generating about 0.06 per unit of risk. If you would invest  1,932  in Bayer AG NA on December 28, 2024 and sell it today you would earn a total of  368.00  from holding Bayer AG NA or generate 19.05% return on investment over 90 days.

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

Bayer AG NA  vs.  SAP SE

Bayer AG NA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG NA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Bayer AG reported solid returns over the last few months and may actually be approaching a breakup point.

SAP SE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, S A P may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bayer AG and S A P

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

The idea behind Bayer AG NA and SAP SE 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.