Correlation Between IPC MEXICO and SAP SE

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

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

Diversification Opportunities for IPC MEXICO and SAP SE

0.9

Correlation Coefficient

IPC MEXICO  SAP SE

Almost no diversification

The 3 months correlation between IPC and SAP is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO i.e., IPC MEXICO and SAP SE go up and down completely randomly.

Pair Corralation between IPC MEXICO and SAP SE

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 1.77 times less return on investment than SAP SE. But when comparing it to its historical volatility, IPC MEXICO is 1.79 times less risky than SAP SE. It trades about 0.13 of its potential returns per unit of risk. SAP SE is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  500,000  in SAP SE on December 25, 2024 and sell it today you would earn a total of  54,000  from holding SAP SE or generate 10.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.77%
Values	Daily Returns

IPC MEXICO  vs.  SAP SE

Pair Trading with IPC MEXICO and SAP SE

The main advantage of trading using opposite IPC MEXICO and SAP SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..