Correlation Between ADDUS HOMECARE and S A P

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

Diversification Opportunities for ADDUS HOMECARE and S A P

0.27

Correlation Coefficient

ADDUS HOMECARE  S A P

Modest diversification

The 3 months correlation between ADDUS and SAP is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding ADDUS HOMECARE and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and ADDUS HOMECARE 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 ADDUS HOMECARE 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 ADDUS HOMECARE i.e., ADDUS HOMECARE and S A P go up and down completely randomly.

Pair Corralation between ADDUS HOMECARE and S A P

Assuming the 90 days trading horizon ADDUS HOMECARE is expected to generate 3.24 times less return on investment than S A P. In addition to that, ADDUS HOMECARE is 1.41 times more volatile than SAP SE. It trades about 0.03 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  10,409  in SAP SE on October 11, 2024 and sell it today you would earn a total of  14,091  from holding SAP SE or generate 135.37% return on investment over 90 days.

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

ADDUS HOMECARE  vs.  SAP SE

ADDUS HOMECARE

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADDUS HOMECARE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ADDUS HOMECARE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SAP SE

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADDUS HOMECARE and S A P

The main advantage of trading using opposite ADDUS HOMECARE and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADDUS HOMECARE 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 ADDUS HOMECARE 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.