Correlation Between Adidas AG and S A P

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

Diversification Opportunities for Adidas AG and S A P

0.24

Correlation Coefficient

Adidas AG  S A P

Modest diversification

The 3 months correlation between Adidas and SAP is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding adidas AG and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Adidas AG 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 adidas AG 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 Adidas AG i.e., Adidas AG and S A P go up and down completely randomly.

Pair Corralation between Adidas AG and S A P

Assuming the 90 days horizon Adidas AG is expected to generate 1.49 times less return on investment than S A P. In addition to that, Adidas AG is 1.38 times more volatile than SAP SE. It trades about 0.07 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  9,803  in SAP SE on September 26, 2024 and sell it today you would earn a total of  14,062  from holding SAP SE or generate 143.45% return on investment over 90 days.

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

adidas AG  vs.  SAP SE

adidas AG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Adidas AG 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

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 Adidas AG and S A P

The main advantage of trading using opposite Adidas AG and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adidas AG 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 adidas AG 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..