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 AG 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
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Roche and Bayer is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG 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 AG 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 AG is expected to generate 0.73 times more return on investment than Bayer AG. However, Roche Holding AG is 1.37 times less risky than Bayer AG. It trades about 0.03 of its potential returns per unit of risk. Bayer AG is currently generating about -0.07 per unit of risk. If you would invest 26,496 in Roche Holding AG on August 27, 2024 and sell it today you would earn a total of 2,208 from holding Roche Holding AG or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Roche Holding AG vs. Bayer AG
Performance |
| Timeline |
| Roche Holding AG |
| Bayer AG |
Roche Holding and Bayer AG Volatility Contrast
Predicted Return Density |
| Returns |
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.| Roche Holding vs. Sanofi ADR | Roche Holding vs. Bristol Myers Squibb | Roche Holding vs. AstraZeneca PLC ADR | Roche Holding vs. Gilead Sciences |
| Bayer AG vs. Sanofi ADR | Bayer AG vs. Bristol Myers Squibb | Bayer AG vs. AstraZeneca PLC ADR | Bayer AG vs. Gilead Sciences |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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