Correlation Between S A P and Eversource Energy

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

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

Diversification Opportunities for S A P and Eversource Energy

0.62

Correlation Coefficient

S A P  Eversource Energy

Poor diversification

The 3 months correlation between SAP and Eversource is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource Energy 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 Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of S A P i.e., S A P and Eversource Energy go up and down completely randomly.

Pair Corralation between S A P and Eversource Energy

Assuming the 90 days trading horizon SAP SE is expected to generate 0.84 times more return on investment than Eversource Energy. However, SAP SE is 1.2 times less risky than Eversource Energy. It trades about 0.05 of its potential returns per unit of risk. Eversource Energy is currently generating about 0.03 per unit of risk. If you would invest  23,630  in SAP SE on December 28, 2024 and sell it today you would earn a total of  1,045  from holding SAP SE or generate 4.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

SAP SE  vs.  Eversource Energy

SAP SE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, S A P is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Eversource Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eversource Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Eversource Energy 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 Eversource Energy

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

The idea behind SAP SE and Eversource Energy 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 CEOs Directory module to screen CEOs from public companies around the world.