Correlation Between SAP SE and Shopify
Can any of the company-specific risk be diversified away by investing in both SAP SE and Shopify 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 SAP SE and Shopify into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and Shopify, you can compare the effects of market volatilities on SAP SE and Shopify 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 SAP SE with a short position of Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAP SE and Shopify.
Diversification Opportunities for SAP SE and Shopify
Poor diversification
The 3 months correlation between SAP and Shopify is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and SAP SE 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of SAP SE i.e., SAP SE and Shopify go up and down completely randomly.
Pair Corralation between SAP SE and Shopify
Assuming the 90 days trading horizon SAP SE is expected to generate 2.55 times less return on investment than Shopify. But when comparing it to its historical volatility, SAP SE is 2.05 times less risky than Shopify. It trades about 0.12 of its potential returns per unit of risk. Shopify is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 5,368 in Shopify on August 28, 2024 and sell it today you would earn a total of 5,054 from holding Shopify or generate 94.15% 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. Shopify
Performance |
| Timeline |
| SAP SE |
| Shopify |
SAP SE and Shopify Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SAP SE and Shopify
The main advantage of trading using opposite SAP SE and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAP SE position performs unexpectedly, Shopify 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 Shopify will offset losses from the drop in Shopify's long position.The idea behind SAP SE and Shopify 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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