Correlation Between S A P and Northern Data
Can any of the company-specific risk be diversified away by investing in both S A P and Northern Data 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 Northern Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and Northern Data AG, you can compare the effects of market volatilities on S A P and Northern Data 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 Northern Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Northern Data.
Diversification Opportunities for S A P and Northern Data
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SAP and Northern is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Northern Data AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Data AG 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 Northern Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Data AG has no effect on the direction of S A P i.e., S A P and Northern Data go up and down completely randomly.
Pair Corralation between S A P and Northern Data
Assuming the 90 days trading horizon S A P is expected to generate 10.52 times less return on investment than Northern Data. But when comparing it to its historical volatility, SAP SE is 2.75 times less risky than Northern Data. It trades about 0.07 of its potential returns per unit of risk. Northern Data AG is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2,905 in Northern Data AG on August 27, 2024 and sell it today you would earn a total of 595.00 from holding Northern Data AG or generate 20.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE vs. Northern Data AG
Performance |
| Timeline |
| SAP SE |
| Northern Data AG |
S A P and Northern Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and Northern Data
The main advantage of trading using opposite S A P and Northern Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Northern Data 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 Northern Data will offset losses from the drop in Northern Data's long position.The idea behind SAP SE and Northern Data AG 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.| Northern Data vs. BANK MANDIRI | Northern Data vs. PT Bank Mandiri | Northern Data vs. BANK MANDIRI | Northern Data vs. BANK MANDIRI |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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