Correlation Between Bayer AG and AstraZeneca PLC

Can any of the company-specific risk be diversified away by investing in both Bayer AG and AstraZeneca PLC 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 AstraZeneca PLC 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 AstraZeneca PLC, you can compare the effects of market volatilities on Bayer AG and AstraZeneca PLC 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 AstraZeneca PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and AstraZeneca PLC.

Diversification Opportunities for Bayer AG and AstraZeneca PLC

0.79

Correlation Coefficient

Bayer AG  AstraZeneca PLC

Poor diversification

The 3 months correlation between Bayer and AstraZeneca is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and AstraZeneca PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC 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 AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC has no effect on the direction of Bayer AG i.e., Bayer AG and AstraZeneca PLC go up and down completely randomly.

Pair Corralation between Bayer AG and AstraZeneca PLC

Assuming the 90 days trading horizon Bayer AG NA is expected to under-perform the AstraZeneca PLC. In addition to that, Bayer AG is 1.58 times more volatile than AstraZeneca PLC. It trades about -0.19 of its total potential returns per unit of risk. AstraZeneca PLC is currently generating about -0.1 per unit of volatility. If you would invest  14,195  in AstraZeneca PLC on September 17, 2024 and sell it today you would lose (1,550) from holding AstraZeneca PLC or give up 10.92% of portfolio value over 90 days.

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

Bayer AG NA  vs.  AstraZeneca PLC

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

AstraZeneca PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AstraZeneca PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bayer AG and AstraZeneca PLC

The main advantage of trading using opposite Bayer AG and AstraZeneca PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayer AG position performs unexpectedly, AstraZeneca PLC 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 AstraZeneca PLC will offset losses from the drop in AstraZeneca PLC's long position.

The idea behind Bayer AG NA and AstraZeneca PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.