Correlation Between S A P and RIWI Corp
Can any of the company-specific risk be diversified away by investing in both S A P and RIWI Corp 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 RIWI Corp 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 RIWI Corp, you can compare the effects of market volatilities on S A P and RIWI Corp 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 RIWI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and RIWI Corp.
Diversification Opportunities for S A P and RIWI Corp
Significant diversification
The 3 months correlation between SAP and RIWI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and RIWI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RIWI Corp 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 RIWI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RIWI Corp has no effect on the direction of S A P i.e., S A P and RIWI Corp go up and down completely randomly.
Pair Corralation between S A P and RIWI Corp
Considering the 90-day investment horizon S A P is expected to generate 1.22 times less return on investment than RIWI Corp. But when comparing it to its historical volatility, SAP SE ADR is 4.5 times less risky than RIWI Corp. It trades about 0.12 of its potential returns per unit of risk. RIWI Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 50.00 in RIWI Corp on August 24, 2024 and sell it today you would lose (5.00) from holding RIWI Corp or give up 10.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE ADR vs. RIWI Corp
Performance |
| Timeline |
| SAP SE ADR |
| RIWI Corp |
S A P and RIWI Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and RIWI Corp
The main advantage of trading using opposite S A P and RIWI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, RIWI Corp 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 RIWI Corp will offset losses from the drop in RIWI Corp's long position.The idea behind SAP SE ADR and RIWI Corp 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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