Correlation Between Bayer AG and Merck
Can any of the company-specific risk be diversified away by investing in both Bayer AG and Merck 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 Bayer AG and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bayer AG NA and Merck Co, you can compare the effects of market volatilities on Bayer AG and Merck 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 Bayer AG with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and Merck.
Diversification Opportunities for Bayer AG and Merck
Poor diversification
The 3 months correlation between Bayer and Merck is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Bayer AG 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 Bayer AG NA are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck has no effect on the direction of Bayer AG i.e., Bayer AG and Merck go up and down completely randomly.
Pair Corralation between Bayer AG and Merck
Assuming the 90 days trading horizon Bayer AG NA is expected to under-perform the Merck. In addition to that, Bayer AG is 1.5 times more volatile than Merck Co. It trades about -0.07 of its total potential returns per unit of risk. Merck Co is currently generating about 0.03 per unit of volatility. If you would invest 8,931 in Merck Co on August 25, 2024 and sell it today you would earn a total of 779.00 from holding Merck Co or generate 8.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bayer AG NA vs. Merck Co
Performance |
| Timeline |
| Bayer AG NA |
| Merck |
Bayer AG and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bayer AG and Merck
The main advantage of trading using opposite Bayer AG and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayer AG position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Bayer AG vs. Western Copper and | Bayer AG vs. LION ONE METALS | Bayer AG vs. ADRIATIC METALS LS 013355 | Bayer AG vs. Zijin Mining Group |
Check out your portfolio center.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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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