Correlation Between S A P and Ibiden CoLtd

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

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

Diversification Opportunities for S A P and Ibiden CoLtd

-0.52

Correlation Coefficient

S A P  Ibiden CoLtd

Excellent diversification

The 3 months correlation between SAP and Ibiden is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Ibiden CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ibiden CoLtd 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 Ibiden CoLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ibiden CoLtd has no effect on the direction of S A P i.e., S A P and Ibiden CoLtd go up and down completely randomly.

Pair Corralation between S A P and Ibiden CoLtd

Assuming the 90 days trading horizon SAP SE is expected to generate 0.48 times more return on investment than Ibiden CoLtd. However, SAP SE is 2.09 times less risky than Ibiden CoLtd. It trades about 0.18 of its potential returns per unit of risk. Ibiden CoLtd is currently generating about -0.06 per unit of risk. If you would invest  21,525  in SAP SE on September 22, 2024 and sell it today you would earn a total of  2,150  from holding SAP SE or generate 9.99% return on investment over 90 days.

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

SAP SE  vs.  Ibiden CoLtd

SAP SE

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, S A P unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ibiden CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ibiden CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ibiden CoLtd is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with S A P and Ibiden CoLtd

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

The idea behind SAP SE and Ibiden CoLtd 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.