Correlation Between Bayer AG and Roche Holding

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

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

Diversification Opportunities for Bayer AG and Roche Holding

0.95

Correlation Coefficient

Bayer AG  Roche Holding

Almost no diversification

The 3 months correlation between Bayer and Roche is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG and Roche Holding Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding 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 are associated (or correlated) with Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding has no effect on the direction of Bayer AG i.e., Bayer AG and Roche Holding go up and down completely randomly.

Pair Corralation between Bayer AG and Roche Holding

Assuming the 90 days horizon Bayer AG is expected to generate 2.37 times more return on investment than Roche Holding. However, Bayer AG is 2.37 times more volatile than Roche Holding Ltd. It trades about 0.29 of its potential returns per unit of risk. Roche Holding Ltd is currently generating about 0.39 per unit of risk. If you would invest  1,966  in Bayer AG on October 20, 2024 and sell it today you would earn a total of  207.00  from holding Bayer AG or generate 10.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.0%
Values	Daily Returns

Bayer AG  vs.  Roche Holding Ltd

Bayer AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG 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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Roche Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bayer AG and Roche Holding

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

The idea behind Bayer AG and Roche Holding Ltd 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.