Correlation Between Salesforce and SAP SE

Can any of the company-specific risk be diversified away by investing in both Salesforce and SAP SE 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 Salesforce and SAP SE into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Salesforce and SAP SE

0.88

Correlation Coefficient

Salesforce  SAP SE

Very poor diversification

The 3 months correlation between Salesforce and SAP is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Salesforce 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 Salesforce are associated (or correlated) with SAP SE. 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 Salesforce i.e., Salesforce and SAP SE go up and down completely randomly.

Pair Corralation between Salesforce and SAP SE

Assuming the 90 days horizon Salesforce is expected to generate 3.3 times less return on investment than SAP SE. In addition to that, Salesforce is 1.78 times more volatile than SAP SE. It trades about 0.02 of its total potential returns per unit of risk. SAP SE is currently generating about 0.11 per unit of volatility. If you would invest  22,400  in SAP SE on September 23, 2024 and sell it today you would earn a total of  800.00  from holding SAP SE or generate 3.57% return on investment over 90 days.

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

Salesforce  vs.  SAP SE

Salesforce

Risk-Adjusted Performance

17 of 100

Solid

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

SAP SE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SAP SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and SAP SE

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

The idea behind Salesforce 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.