Correlation Between S A P and Paylocity Holdng
Can any of the company-specific risk be diversified away by investing in both S A P and Paylocity Holdng 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 Paylocity Holdng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE ADR and Paylocity Holdng, you can compare the effects of market volatilities on S A P and Paylocity Holdng 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 Paylocity Holdng. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Paylocity Holdng.
Diversification Opportunities for S A P and Paylocity Holdng
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SAP and Paylocity is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Paylocity Holdng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paylocity Holdng 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 ADR are associated (or correlated) with Paylocity Holdng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paylocity Holdng has no effect on the direction of S A P i.e., S A P and Paylocity Holdng go up and down completely randomly.
Pair Corralation between S A P and Paylocity Holdng
Considering the 90-day investment horizon SAP SE ADR is expected to under-perform the Paylocity Holdng. But the stock apears to be less risky and, when comparing its historical volatility, SAP SE ADR is 1.89 times less risky than Paylocity Holdng. The stock trades about -0.09 of its potential returns per unit of risk. The Paylocity Holdng is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 17,513 in Paylocity Holdng on August 28, 2024 and sell it today you would earn a total of 3,498 from holding Paylocity Holdng or generate 19.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE ADR vs. Paylocity Holdng
Performance |
| Timeline |
| SAP SE ADR |
| Paylocity Holdng |
S A P and Paylocity Holdng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and Paylocity Holdng
The main advantage of trading using opposite S A P and Paylocity Holdng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Paylocity Holdng 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 Paylocity Holdng will offset losses from the drop in Paylocity Holdng's long position.The idea behind SAP SE ADR and Paylocity Holdng 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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