Correlation Between S A P and INSURANCE AUST

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

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

Diversification Opportunities for S A P and INSURANCE AUST

0.82

Correlation Coefficient

S A P  INSURANCE AUST

Very poor diversification

The 3 months correlation between SAP and INSURANCE is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and INSURANCE AUST GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSURANCE AUST GRP 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 INSURANCE AUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSURANCE AUST GRP has no effect on the direction of S A P i.e., S A P and INSURANCE AUST go up and down completely randomly.

Pair Corralation between S A P and INSURANCE AUST

Assuming the 90 days trading horizon SAP SE is expected to generate 0.87 times more return on investment than INSURANCE AUST. However, SAP SE is 1.15 times less risky than INSURANCE AUST. It trades about 0.14 of its potential returns per unit of risk. INSURANCE AUST GRP is currently generating about 0.09 per unit of risk. If you would invest  10,399  in SAP SE on October 21, 2024 and sell it today you would earn a total of  15,286  from holding SAP SE or generate 146.99% return on investment over 90 days.

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

SAP SE  vs.  INSURANCE AUST GRP

SAP SE

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, S A P unveiled solid returns over the last few months and may actually be approaching a breakup point.

INSURANCE AUST GRP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INSURANCE AUST GRP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, INSURANCE AUST exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and INSURANCE AUST

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

The idea behind SAP SE and INSURANCE AUST GRP 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.