Correlation Between TT Electronics and S A P

Can any of the company-specific risk be diversified away by investing in both TT Electronics 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 TT Electronics 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 TT Electronics PLC and SAP SE, you can compare the effects of market volatilities on TT Electronics 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 TT Electronics with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of TT Electronics and S A P.

Diversification Opportunities for TT Electronics and S A P

0.55

Correlation Coefficient

TT Electronics  S A P

Very weak diversification

The 3 months correlation between 7TT and SAP is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding TT Electronics PLC and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and TT Electronics 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 TT Electronics PLC 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 TT Electronics i.e., TT Electronics and S A P go up and down completely randomly.

Pair Corralation between TT Electronics and S A P

Assuming the 90 days trading horizon TT Electronics PLC is expected to under-perform the S A P. In addition to that, TT Electronics is 2.08 times more volatile than SAP SE. It trades about -0.01 of its total potential returns per unit of risk. SAP SE is currently generating about 0.13 per unit of volatility. If you would invest  9,951  in SAP SE on September 27, 2024 and sell it today you would earn a total of  13,914  from holding SAP SE or generate 139.83% return on investment over 90 days.

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

TT Electronics PLC  vs.  SAP SE

TT Electronics PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TT Electronics PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, TT Electronics unveiled solid returns over the last few months and may actually be approaching a breakup point.

SAP SE

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 15 (%) 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 TT Electronics and S A P

The main advantage of trading using opposite TT Electronics and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TT Electronics 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 TT Electronics PLC 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.