Correlation Between S A P and Xero
Can any of the company-specific risk be diversified away by investing in both S A P and Xero 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 Xero 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 Xero Limited, you can compare the effects of market volatilities on S A P and Xero 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 Xero. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Xero.
Diversification Opportunities for S A P and Xero
Very weak diversification
The 3 months correlation between SAP and Xero is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Xero Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero Limited 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 Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero Limited has no effect on the direction of S A P i.e., S A P and Xero go up and down completely randomly.
Pair Corralation between S A P and Xero
Considering the 90-day investment horizon S A P is expected to generate 6.07 times less return on investment than Xero. In addition to that, S A P is 1.4 times more volatile than Xero Limited. It trades about 0.06 of its total potential returns per unit of risk. Xero Limited is currently generating about 0.54 per unit of volatility. If you would invest 9,684 in Xero Limited on September 1, 2024 and sell it today you would earn a total of 1,156 from holding Xero Limited or generate 11.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAP SE ADR vs. Xero Limited
Performance |
| Timeline |
| SAP SE ADR |
| Xero Limited |
S A P and Xero Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and Xero
The main advantage of trading using opposite S A P and Xero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Xero 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 Xero will offset losses from the drop in Xero's long position.| S A P vs. Tyler Technologies | S A P vs. Roper Technologies, Common | S A P vs. Cadence Design Systems | S A P vs. PTC Inc |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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