Correlation Between BASF SE and S A P

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

Diversification Opportunities for BASF SE and S A P

-0.62

Correlation Coefficient

BASF SE  S A P

Excellent diversification

The 3 months correlation between BASF and SAP is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and BASF 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 BASF SE 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 BASF SE i.e., BASF SE and S A P go up and down completely randomly.

Pair Corralation between BASF SE and S A P

Assuming the 90 days horizon BASF SE is expected to under-perform the S A P. In addition to that, BASF SE is 1.07 times more volatile than SAP SE. It trades about 0.0 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

BASF SE  vs.  SAP SE

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BASF SE 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 BASF SE and S A P

The main advantage of trading using opposite BASF SE and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE 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 BASF SE 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.