Correlation Between CSPC PHARMACEUTGR and Bayer AG

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

By analyzing existing cross correlation between CSPC PHARMACEUTGR ADR4 and Bayer AG NA, you can compare the effects of market volatilities on CSPC PHARMACEUTGR and Bayer AG 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 CSPC PHARMACEUTGR with a short position of Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSPC PHARMACEUTGR and Bayer AG.

Diversification Opportunities for CSPC PHARMACEUTGR and Bayer AG

0.8

Correlation Coefficient

CSPC PHARMACEUTGR  Bayer AG

Very poor diversification

The 3 months correlation between CSPC and Bayer is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CSPC PHARMACEUTGR ADR4 and Bayer AG NA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG NA and CSPC PHARMACEUTGR 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 CSPC PHARMACEUTGR ADR4 are associated (or correlated) with Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG NA has no effect on the direction of CSPC PHARMACEUTGR i.e., CSPC PHARMACEUTGR and Bayer AG go up and down completely randomly.

Pair Corralation between CSPC PHARMACEUTGR and Bayer AG

Assuming the 90 days trading horizon CSPC PHARMACEUTGR ADR4 is expected to under-perform the Bayer AG. But the stock apears to be less risky and, when comparing its historical volatility, CSPC PHARMACEUTGR ADR4 is 1.75 times less risky than Bayer AG. The stock trades about -0.4 of its potential returns per unit of risk. The Bayer AG NA is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  1,887  in Bayer AG NA on October 22, 2024 and sell it today you would earn a total of  238.00  from holding Bayer AG NA or generate 12.61% return on investment over 90 days.

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

CSPC PHARMACEUTGR ADR4  vs.  Bayer AG NA

CSPC PHARMACEUTGR ADR4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSPC PHARMACEUTGR ADR4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental 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.

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA 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.

Pair Trading with CSPC PHARMACEUTGR and Bayer AG

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

The idea behind CSPC PHARMACEUTGR ADR4 and Bayer AG NA 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.