Correlation Between S A P and Liberty Broadband
Can any of the company-specific risk be diversified away by investing in both S A P and Liberty Broadband 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 S A P and Liberty Broadband into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and Liberty Broadband, you can compare the effects of market volatilities on S A P and Liberty Broadband 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 S A P with a short position of Liberty Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Liberty Broadband.
Diversification Opportunities for S A P and Liberty Broadband
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SAP and Liberty is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Liberty Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband and S A P 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 SAP SE are associated (or correlated) with Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband has no effect on the direction of S A P i.e., S A P and Liberty Broadband go up and down completely randomly.
Pair Corralation between S A P and Liberty Broadband
Assuming the 90 days trading horizon S A P is expected to generate 3.66 times less return on investment than Liberty Broadband. But when comparing it to its historical volatility, SAP SE is 2.37 times less risky than Liberty Broadband. It trades about 0.1 of its potential returns per unit of risk. Liberty Broadband is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 7,500 in Liberty Broadband on August 25, 2024 and sell it today you would earn a total of 800.00 from holding Liberty Broadband or generate 10.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE vs. Liberty Broadband
Performance |
| Timeline |
| SAP SE |
| Liberty Broadband |
S A P and Liberty Broadband Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and Liberty Broadband
The main advantage of trading using opposite S A P and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Liberty Broadband 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 Liberty Broadband will offset losses from the drop in Liberty Broadband's long position.The idea behind SAP SE and Liberty Broadband 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.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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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