Correlation Between Bayer AG and Takeda Pharmaceutical

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

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

Diversification Opportunities for Bayer AG and Takeda Pharmaceutical

0.67

Correlation Coefficient

Bayer AG  Takeda Pharmaceutical

Poor diversification

The 3 months correlation between Bayer and Takeda is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG and Takeda Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Takeda Pharmaceutical 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 Takeda Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Takeda Pharmaceutical has no effect on the direction of Bayer AG i.e., Bayer AG and Takeda Pharmaceutical go up and down completely randomly.

Pair Corralation between Bayer AG and Takeda Pharmaceutical

Assuming the 90 days horizon Bayer AG is expected to under-perform the Takeda Pharmaceutical. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bayer AG is 2.02 times less risky than Takeda Pharmaceutical. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Takeda Pharmaceutical Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,665  in Takeda Pharmaceutical Co on October 6, 2024 and sell it today you would earn a total of  10.00  from holding Takeda Pharmaceutical Co or generate 0.38% return on investment over 90 days.

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

Bayer AG  vs.  Takeda Pharmaceutical Co

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.

Takeda Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Takeda Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Takeda Pharmaceutical 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 AG and Takeda Pharmaceutical

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

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