Correlation Between S A P and Sebata Holdings

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

By analyzing existing cross correlation between Sappi and Sebata Holdings, you can compare the effects of market volatilities on S A P and Sebata Holdings 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 Sebata Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Sebata Holdings.

Diversification Opportunities for S A P and Sebata Holdings

-0.4

Correlation Coefficient

S A P  Sebata Holdings

Very good diversification

The 3 months correlation between SAP and Sebata is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sappi and Sebata Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sebata Holdings 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 Sappi are associated (or correlated) with Sebata Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sebata Holdings has no effect on the direction of S A P i.e., S A P and Sebata Holdings go up and down completely randomly.

Pair Corralation between S A P and Sebata Holdings

Assuming the 90 days trading horizon S A P is expected to generate 277.66 times less return on investment than Sebata Holdings. But when comparing it to its historical volatility, Sappi is 43.06 times less risky than Sebata Holdings. It trades about 0.01 of its potential returns per unit of risk. Sebata Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,476  in Sebata Holdings on September 26, 2024 and sell it today you would lose (8,676) from holding Sebata Holdings or give up 46.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Sappi  vs.  Sebata Holdings

Sappi

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sappi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, S A P is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sebata Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sebata Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with S A P and Sebata Holdings

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

The idea behind Sappi and Sebata Holdings 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.