Correlation Between International Business and Bayer AG

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

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

Diversification Opportunities for International Business and Bayer AG

0.64

Correlation Coefficient

International Business  Bayer AG

Poor diversification

The 3 months correlation between International and Bayer is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine 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 International Business 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 International Business Machines 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 International Business i.e., International Business and Bayer AG go up and down completely randomly.

Pair Corralation between International Business and Bayer AG

Considering the 90-day investment horizon International Business Machines is expected to generate 1.14 times more return on investment than Bayer AG. However, International Business is 1.14 times more volatile than Bayer AG NA. It trades about 0.18 of its potential returns per unit of risk. Bayer AG NA is currently generating about 0.19 per unit of risk. If you would invest  21,830  in International Business Machines on December 11, 2024 and sell it today you would earn a total of  3,860  from holding International Business Machines or generate 17.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

International Business Machine  vs.  Bayer AG NA

International Business

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

Bayer AG NA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG NA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bayer AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Bayer AG

The main advantage of trading using opposite International Business and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.