Correlation Between S A P and CAVU Resources

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

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

Diversification Opportunities for S A P and CAVU Resources

-0.38

Correlation Coefficient

S A P  CAVU Resources

Very good diversification

The 3 months correlation between SAP and CAVU is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and CAVU Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAVU Resources 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 ADR are associated (or correlated) with CAVU Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAVU Resources has no effect on the direction of S A P i.e., S A P and CAVU Resources go up and down completely randomly.

Pair Corralation between S A P and CAVU Resources

Considering the 90-day investment horizon S A P is expected to generate 10.23 times less return on investment than CAVU Resources. But when comparing it to its historical volatility, SAP SE ADR is 10.29 times less risky than CAVU Resources. It trades about 0.06 of its potential returns per unit of risk. CAVU Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.04  in CAVU Resources on December 26, 2024 and sell it today you would lose (0.01) from holding CAVU Resources or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

SAP SE ADR  vs.  CAVU Resources

SAP SE ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, S A P may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CAVU Resources

Risk-Adjusted Performance

Insignificant

Over the last 90 days CAVU Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, CAVU Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and CAVU Resources

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

The idea behind SAP SE ADR and CAVU Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.