Correlation Between Bayer AG and Diageo Plc

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

Diversification Opportunities for Bayer AG and Diageo Plc

-0.78

Correlation Coefficient

Bayer AG  Diageo Plc

Pay attention - limited upside

The 3 months correlation between Bayer and Diageo is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Bayer AG i.e., Bayer AG and Diageo Plc go up and down completely randomly.

Pair Corralation between Bayer AG and Diageo Plc

Assuming the 90 days trading horizon Bayer AG NA is expected to generate 1.42 times more return on investment than Diageo Plc. However, Bayer AG is 1.42 times more volatile than Diageo plc. It trades about 0.17 of its potential returns per unit of risk. Diageo plc is currently generating about -0.12 per unit of risk. If you would invest  2,200  in Bayer AG NA on April 23, 2025 and sell it today you would earn a total of  556.00  from holding Bayer AG NA or generate 25.27% return on investment over 90 days.

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

Bayer AG NA  vs.  Diageo plc

Bayer AG NA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG NA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Bayer AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Diageo plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bayer AG and Diageo Plc

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

The idea behind Bayer AG NA and Diageo 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.