Correlation Between Carmat SA and Bayer AG

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

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

Diversification Opportunities for Carmat SA and Bayer AG

0.76

Correlation Coefficient

Carmat SA  Bayer AG

Poor diversification

The 3 months correlation between Carmat and Bayer is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Carmat SA 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 Carmat SA 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 Carmat SA 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 Carmat SA i.e., Carmat SA and Bayer AG go up and down completely randomly.

Pair Corralation between Carmat SA and Bayer AG

Assuming the 90 days horizon Carmat SA is expected to generate 2.78 times more return on investment than Bayer AG. However, Carmat SA is 2.78 times more volatile than Bayer AG NA. It trades about -0.03 of its potential returns per unit of risk. Bayer AG NA is currently generating about -0.12 per unit of risk. If you would invest  105.00  in Carmat SA on September 23, 2024 and sell it today you would lose (5.00) from holding Carmat SA or give up 4.76% of portfolio value over 90 days.

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

Carmat SA  vs.  Bayer AG NA

Carmat SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carmat SA 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 basic indicators remain nearly stable which may send shares a bit higher in January 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. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Carmat SA and Bayer AG

The main advantage of trading using opposite Carmat SA and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carmat SA 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 Carmat SA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.