Correlation Between Bayer AG and GlaxoSmithKline PLC

Can any of the company-specific risk be diversified away by investing in both Bayer AG and GlaxoSmithKline 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 GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bayer AG PK and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on Bayer AG and GlaxoSmithKline 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 GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayer AG and GlaxoSmithKline PLC.

Diversification Opportunities for Bayer AG and GlaxoSmithKline PLC

-0.27

Correlation Coefficient

Bayer AG  GlaxoSmithKline PLC

Very good diversification

The 3 months correlation between Bayer and GlaxoSmithKline is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG PK and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 PK are associated (or correlated) with GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Bayer AG i.e., Bayer AG and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Bayer AG and GlaxoSmithKline PLC

If you would invest  4,086  in GlaxoSmithKline PLC ADR on February 4, 2024 and sell it today you would earn a total of  264.00  from holding GlaxoSmithKline PLC ADR or generate 6.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

Bayer AG PK  vs.  GlaxoSmithKline PLC ADR

Bayer AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bayer AG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bayer AG and GlaxoSmithKline PLC

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

The idea behind Bayer AG PK and GlaxoSmithKline PLC ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.