Correlation Between Alphabet and Bayer AG
Can any of the company-specific risk be diversified away by investing in both Alphabet 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 Alphabet and Bayer AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class C and Bayer AG, you can compare the effects of market volatilities on Alphabet 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 Alphabet with a short position of Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Bayer AG.
Diversification Opportunities for Alphabet and Bayer AG
Excellent diversification
The 3 months correlation between Alphabet and Bayer is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Bayer AG go up and down completely randomly.
Pair Corralation between Alphabet and Bayer AG
Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.74 times more return on investment than Bayer AG. However, Alphabet Inc Class C is 1.35 times less risky than Bayer AG. It trades about 0.05 of its potential returns per unit of risk. Bayer AG is currently generating about -0.07 per unit of risk. If you would invest 13,828 in Alphabet Inc Class C on August 24, 2024 and sell it today you would earn a total of 2,856 from holding Alphabet Inc Class C or generate 20.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Alphabet Inc Class C vs. Bayer AG
Performance |
| Timeline |
| Alphabet Class C |
| Bayer AG |
Alphabet and Bayer AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and Bayer AG
The main advantage of trading using opposite Alphabet and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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.| Bayer AG vs. Kaiser Aluminum | Bayer AG vs. Iridium Communications | Bayer AG vs. Weibo Corp | Bayer AG vs. Maanshan Iron Steel |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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