Correlation Between Microsoft and S A P
Can any of the company-specific risk be diversified away by investing in both Microsoft and S A P 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 Microsoft and S A P into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SAP SE, you can compare the effects of market volatilities on Microsoft and S A P 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 Microsoft with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and S A P.
Diversification Opportunities for Microsoft and S A P
Very poor diversification
The 3 months correlation between Microsoft and SAP is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Microsoft 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 Microsoft are associated (or correlated) with S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Microsoft i.e., Microsoft and S A P go up and down completely randomly.
Pair Corralation between Microsoft and S A P
Assuming the 90 days horizon Microsoft is expected to generate 1.38 times less return on investment than S A P. In addition to that, Microsoft is 1.04 times more volatile than SAP SE. It trades about 0.08 of its total potential returns per unit of risk. SAP SE is currently generating about 0.12 per unit of volatility. If you would invest 9,947 in SAP SE on August 29, 2024 and sell it today you would earn a total of 12,103 from holding SAP SE or generate 121.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SAP SE
Performance |
| Timeline |
| Microsoft |
| SAP SE |
Microsoft and S A P Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and S A P
The main advantage of trading using opposite Microsoft and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, S A P 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 S A P will offset losses from the drop in S A P's long position.The idea behind Microsoft and SAP SE 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.| S A P vs. REINET INVESTMENTS SCA | S A P vs. Boiron SA | S A P vs. BlueScope Steel Limited | S A P vs. AOYAMA TRADING |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
Other Complementary Tools
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities |