Correlation Between S A P and Nine Dragons
Can any of the company-specific risk be diversified away by investing in both S A P and Nine Dragons 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 Nine Dragons into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and Nine Dragons Paper, you can compare the effects of market volatilities on S A P and Nine Dragons 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 Nine Dragons. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Nine Dragons.
Diversification Opportunities for S A P and Nine Dragons
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SAP and Nine is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Nine Dragons Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nine Dragons Paper 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 Nine Dragons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nine Dragons Paper has no effect on the direction of S A P i.e., S A P and Nine Dragons go up and down completely randomly.
Pair Corralation between S A P and Nine Dragons
Assuming the 90 days trading horizon SAP SE is expected to generate 0.63 times more return on investment than Nine Dragons. However, SAP SE is 1.58 times less risky than Nine Dragons. It trades about 0.04 of its potential returns per unit of risk. Nine Dragons Paper is currently generating about 0.01 per unit of risk. If you would invest 22,230 in SAP SE on August 28, 2024 and sell it today you would earn a total of 205.00 from holding SAP SE or generate 0.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE vs. Nine Dragons Paper
Performance |
| Timeline |
| SAP SE |
| Nine Dragons Paper |
S A P and Nine Dragons Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and Nine Dragons
The main advantage of trading using opposite S A P and Nine Dragons positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Nine Dragons 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 Nine Dragons will offset losses from the drop in Nine Dragons' long position.The idea behind SAP SE and Nine Dragons Paper 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.| Nine Dragons vs. China Communications Services | Nine Dragons vs. COMBA TELECOM SYST | Nine Dragons vs. FARO Technologies | Nine Dragons vs. Canadian Utilities 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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