Correlation Between Focus Home and S A P

Can any of the company-specific risk be diversified away by investing in both Focus Home and S A P 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 Focus Home and S A P into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Focus Home Interactive and SAP SE, you can compare the effects of market volatilities on Focus Home and S A P 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 Focus Home with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Focus Home and S A P.

Diversification Opportunities for Focus Home and S A P

0.22

Correlation Coefficient

Focus Home  S A P

Modest diversification

The 3 months correlation between Focus and SAP is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Focus Home Interactive and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Focus Home 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 Focus Home Interactive are associated (or correlated) with S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Focus Home i.e., Focus Home and S A P go up and down completely randomly.

Pair Corralation between Focus Home and S A P

Assuming the 90 days horizon Focus Home Interactive is not expected to generate positive returns. Moreover, Focus Home is 2.77 times more volatile than SAP SE. It trades away all of its potential returns to assume current level of volatility. SAP SE is currently generating about 0.23 per unit of risk. If you would invest  22,270  in SAP SE on October 26, 2024 and sell it today you would earn a total of  4,130  from holding SAP SE or generate 18.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Focus Home Interactive  vs.  SAP SE

Focus Home Interactive

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Focus Home Interactive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Focus Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SAP SE

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Home and S A P

The main advantage of trading using opposite Focus Home and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Focus Home position performs unexpectedly, S A P 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 S A P will offset losses from the drop in S A P's long position.

The idea behind Focus Home Interactive and SAP SE 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.