Correlation Between S A P and St James’s
Can any of the company-specific risk be diversified away by investing in both S A P and St James’s 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 St James’s into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and St Jamess Place, you can compare the effects of market volatilities on S A P and St James’s 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 St James’s. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and St James’s.
Diversification Opportunities for S A P and St James’s
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SAP and 1IV is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and St Jamess Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on St Jamess Place 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 St James’s. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of St Jamess Place has no effect on the direction of S A P i.e., S A P and St James’s go up and down completely randomly.
Pair Corralation between S A P and St James’s
Assuming the 90 days trading horizon SAP SE is expected to generate 0.76 times more return on investment than St James’s. However, SAP SE is 1.32 times less risky than St James’s. It trades about 0.32 of its potential returns per unit of risk. St Jamess Place is currently generating about 0.17 per unit of risk. If you would invest 22,040 in SAP SE on September 13, 2024 and sell it today you would earn a total of 2,110 from holding SAP SE or generate 9.57% 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. St Jamess Place
Performance |
| Timeline |
| SAP SE |
| St Jamess Place |
S A P and St James’s Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and St James’s
The main advantage of trading using opposite S A P and St James’s positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, St James’s 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 St James’s will offset losses from the drop in St James’s' long position.| S A P vs. INTERSHOP Communications Aktiengesellschaft | S A P vs. Ribbon Communications | S A P vs. PLAYTIKA HOLDING DL 01 | S A P vs. Entravision Communications |
| St James’s vs. Cogent Communications Holdings | St James’s vs. Mobilezone Holding AG | St James’s vs. Digilife Technologies Limited | St James’s vs. ACCSYS TECHPLC EO |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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