Correlation Between Roots Corp and S A P
Can any of the company-specific risk be diversified away by investing in both Roots Corp 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 Roots Corp 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 Roots Corp and Saputo Inc, you can compare the effects of market volatilities on Roots Corp 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 Roots Corp with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roots Corp and S A P.
Diversification Opportunities for Roots Corp and S A P
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Roots and SAP is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Roots Corp and Saputo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saputo Inc and Roots Corp 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 Roots Corp 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 Saputo Inc has no effect on the direction of Roots Corp i.e., Roots Corp and S A P go up and down completely randomly.
Pair Corralation between Roots Corp and S A P
Assuming the 90 days trading horizon Roots Corp is expected to generate 3.19 times more return on investment than S A P. However, Roots Corp is 3.19 times more volatile than Saputo Inc. It trades about 0.01 of its potential returns per unit of risk. Saputo Inc is currently generating about -0.07 per unit of risk. If you would invest 202.00 in Roots Corp on September 1, 2024 and sell it today you would lose (1.00) from holding Roots Corp or give up 0.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Roots Corp vs. Saputo Inc
Performance |
| Timeline |
| Roots Corp |
| Saputo Inc |
Roots Corp and S A P Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Roots Corp and S A P
The main advantage of trading using opposite Roots Corp and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roots Corp 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 Roots Corp and Saputo Inc 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. Metro Inc | S A P vs. George Weston Limited | S A P vs. Gildan Activewear | S A P vs. Loblaw Companies Limited |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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