Correlation Between Grifols SA and Bayer AG

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

By analyzing existing cross correlation between Grifols SA ADR and Bayer AG, you can compare the effects of market volatilities on Grifols SA 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 Grifols SA with a short position of Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grifols SA and Bayer AG.

Diversification Opportunities for Grifols SA and Bayer AG

0.62

Correlation Coefficient

Grifols SA  Bayer AG

Poor diversification

The 3 months correlation between Grifols and Bayer is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Grifols SA ADR and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG and Grifols SA 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 Grifols SA ADR 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 Grifols SA i.e., Grifols SA and Bayer AG go up and down completely randomly.

Pair Corralation between Grifols SA and Bayer AG

Given the investment horizon of 90 days Grifols SA ADR is expected to generate 1.85 times more return on investment than Bayer AG. However, Grifols SA is 1.85 times more volatile than Bayer AG. It trades about 0.02 of its potential returns per unit of risk. Bayer AG is currently generating about -0.07 per unit of risk. If you would invest  901.00  in Grifols SA ADR on June 21, 2024 and sell it today you would earn a total of  7.00  from holding Grifols SA ADR or generate 0.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.52%
Values	Daily Returns

Grifols SA ADR  vs.  Bayer AG

Grifols SA ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grifols SA ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Grifols SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bayer AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bayer AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Bayer AG may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Grifols SA and Bayer AG

The main advantage of trading using opposite Grifols SA and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grifols SA 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 Grifols SA ADR 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.

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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.