Correlation Between Mastercard and Bayer AG

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

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

Diversification Opportunities for Mastercard and Bayer AG

0.75

Correlation Coefficient

Mastercard  Bayer AG

Poor diversification

The 3 months correlation between Mastercard and Bayer is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG and Mastercard 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 Mastercard 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 has no effect on the direction of Mastercard i.e., Mastercard and Bayer AG go up and down completely randomly.

Pair Corralation between Mastercard and Bayer AG

Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.91 times less return on investment than Bayer AG. But when comparing it to its historical volatility, Mastercard is 1.6 times less risky than Bayer AG. It trades about 0.13 of its potential returns per unit of risk. Bayer AG is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,015  in Bayer AG on December 1, 2024 and sell it today you would earn a total of  340.00  from holding Bayer AG or generate 16.87% return on investment over 90 days.

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

Mastercard  vs.  Bayer AG

Mastercard

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bayer AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bayer AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard and Bayer AG

The main advantage of trading using opposite Mastercard and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard 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 Mastercard and Bayer AG 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.