Correlation Between South32 and S A P
Can any of the company-specific risk be diversified away by investing in both South32 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 South32 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 South32 and Sappi, you can compare the effects of market volatilities on South32 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 South32 with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and S A P.
Diversification Opportunities for South32 and S A P
Poor diversification
The 3 months correlation between South32 and SAP is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding South32 and Sappi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sappi and South32 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 South32 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 Sappi has no effect on the direction of South32 i.e., South32 and S A P go up and down completely randomly.
Pair Corralation between South32 and S A P
Assuming the 90 days trading horizon South32 is expected to generate 7.23 times less return on investment than S A P. But when comparing it to its historical volatility, South32 is 1.05 times less risky than S A P. It trades about 0.0 of its potential returns per unit of risk. Sappi is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 474,151 in Sappi on August 29, 2024 and sell it today you would earn a total of 29,449 from holding Sappi or generate 6.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
South32 vs. Sappi
Performance |
| Timeline |
| South32 |
| Sappi |
South32 and S A P Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and S A P
The main advantage of trading using opposite South32 and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 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.| South32 vs. Capitec Bank Holdings | South32 vs. Standard Bank Group | South32 vs. Astral Foods | South32 vs. Harmony Gold Mining |
| S A P vs. Trematon Capital Investments | S A P vs. Afine Investments | S A P vs. Allied Electronics | S A P vs. RCL Foods |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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