Correlation Between S A P and CAE

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

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

Diversification Opportunities for S A P and CAE

0.44

Correlation Coefficient

S A P  CAE

Very weak diversification

The 3 months correlation between SAP and CAE is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Saputo Inc and CAE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAE Inc 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 Saputo Inc are associated (or correlated) with CAE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAE Inc has no effect on the direction of S A P i.e., S A P and CAE go up and down completely randomly.

Pair Corralation between S A P and CAE

Assuming the 90 days trading horizon Saputo Inc is expected to generate 0.59 times more return on investment than CAE. However, Saputo Inc is 1.71 times less risky than CAE. It trades about 0.02 of its potential returns per unit of risk. CAE Inc is currently generating about 0.01 per unit of risk. If you would invest  2,474  in Saputo Inc on December 28, 2024 and sell it today you would earn a total of  36.00  from holding Saputo Inc or generate 1.46% return on investment over 90 days.

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

Saputo Inc  vs.  CAE Inc

Saputo Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Saputo Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, S A P is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CAE Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, CAE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with S A P and CAE

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

The idea behind Saputo Inc and CAE Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.