Correlation Between Roche Holding and Bayer AG

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

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

Diversification Opportunities for Roche Holding and Bayer AG

0.66

Correlation Coefficient

Roche Holding  Bayer AG

Poor diversification

The 3 months correlation between Roche and Bayer is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding Ltd and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG and Roche Holding 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 Roche Holding Ltd 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 Roche Holding i.e., Roche Holding and Bayer AG go up and down completely randomly.

Pair Corralation between Roche Holding and Bayer AG

Assuming the 90 days horizon Roche Holding is expected to generate 1.29 times less return on investment than Bayer AG. But when comparing it to its historical volatility, Roche Holding Ltd is 1.76 times less risky than Bayer AG. It trades about 0.21 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  1,975  in Bayer AG on December 29, 2024 and sell it today you would earn a total of  476.00  from holding Bayer AG or generate 24.1% return on investment over 90 days.

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

Roche Holding Ltd  vs.  Bayer AG

Roche Holding

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Roche Holding Ltd are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Roche Holding showed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, Bayer AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Roche Holding and Bayer AG

The main advantage of trading using opposite Roche Holding and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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 Roche Holding Ltd 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.