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 trading horizon Microsoft is expected to generate 1.49 times less return on investment than S A P. In addition to that, Microsoft is 1.2 times more volatile than SAP SE. It trades about 0.1 of its total potential returns per unit of risk. SAP SE is currently generating about 0.18 per unit of volatility. If you would invest 20,425 in SAP SE on August 29, 2024 and sell it today you would earn a total of 1,980 from holding SAP SE or generate 9.69% 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.| Microsoft vs. Eagle Materials | Microsoft vs. Vulcan Materials | Microsoft vs. Plastic Omnium | Microsoft vs. Shenandoah Telecommunications |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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