Correlation Between Bayer AG and Sanofi ADR

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

By analyzing existing cross correlation between Bayer AG PK and Sanofi ADR, you can compare the effects of market volatilities on Bayer AG and Sanofi ADR 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 Sanofi ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and Sanofi ADR.

Diversification Opportunities for Bayer AG and Sanofi ADR

0.19

Correlation Coefficient

Bayer AG  Sanofi ADR

Average diversification

The 3 months correlation between Bayer and Sanofi is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG PK and Sanofi ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanofi ADR 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 PK are associated (or correlated) with Sanofi ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanofi ADR has no effect on the direction of Bayer AG i.e., Bayer AG and Sanofi ADR go up and down completely randomly.

Pair Corralation between Bayer AG and Sanofi ADR

If you would invest  1,686  in Bayer AG PK on September 12, 2024 and sell it today you would earn a total of  0.00  from holding Bayer AG PK or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Bayer AG PK  vs.  Sanofi ADR

Bayer AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bayer AG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Sanofi ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanofi ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bayer AG and Sanofi ADR

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

The idea behind Bayer AG PK and Sanofi ADR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.