Correlation Between S A P and Deutsche Lufthansa

Can any of the company-specific risk be diversified away by investing in both S A P and Deutsche Lufthansa 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 S A P and Deutsche Lufthansa into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for S A P and Deutsche Lufthansa

0.55

Correlation Coefficient

S A P  Deutsche Lufthansa

Very weak diversification

The 3 months correlation between SAP and Deutsche is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Deutsche Lufthansa AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Lufthansa and S A P 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 SAP SE are associated (or correlated) with Deutsche Lufthansa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Lufthansa has no effect on the direction of S A P i.e., S A P and Deutsche Lufthansa go up and down completely randomly.

Pair Corralation between S A P and Deutsche Lufthansa

Assuming the 90 days horizon SAP SE is expected to generate 0.69 times more return on investment than Deutsche Lufthansa. However, SAP SE is 1.45 times less risky than Deutsche Lufthansa. It trades about 0.13 of its potential returns per unit of risk. Deutsche Lufthansa AG is currently generating about 0.04 per unit of risk. If you would invest  19,836  in SAP SE on August 30, 2024 and sell it today you would earn a total of  2,214  from holding SAP SE or generate 11.16% return on investment over 90 days.

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

SAP SE  vs.  Deutsche Lufthansa AG

SAP SE

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, S A P may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Deutsche Lufthansa

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Lufthansa AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deutsche Lufthansa is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with S A P and Deutsche Lufthansa

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

The idea behind SAP SE and Deutsche Lufthansa AG 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.