Correlation Between S A P and Fernhill Corp

Can any of the company-specific risk be diversified away by investing in both S A P and Fernhill Corp 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 Fernhill Corp 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 Fernhill Corp, you can compare the effects of market volatilities on S A P and Fernhill Corp 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 Fernhill Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Fernhill Corp.

Diversification Opportunities for S A P and Fernhill Corp

-0.52

Correlation Coefficient

S A P  Fernhill Corp

Excellent diversification

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

Pair Corralation between S A P and Fernhill Corp

Considering the 90-day investment horizon S A P is expected to generate 1.3 times less return on investment than Fernhill Corp. But when comparing it to its historical volatility, SAP SE ADR is 6.85 times less risky than Fernhill Corp. It trades about 0.12 of its potential returns per unit of risk. Fernhill Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  0.17  in Fernhill Corp on September 3, 2024 and sell it today you would lose (0.11) from holding Fernhill Corp or give up 64.71% of portfolio value over 90 days.

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

SAP SE ADR  vs.  Fernhill Corp

SAP SE ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 8 (%) 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 January 2025.

Fernhill Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fernhill Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with S A P and Fernhill Corp

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

The idea behind SAP SE ADR and Fernhill Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.