Correlation Between S A P and LifeSpeak

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

Diversification Opportunities for S A P and LifeSpeak

0.04

Correlation Coefficient

S A P  LifeSpeak

Significant diversification

The 3 months correlation between SAP and LifeSpeak is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and LifeSpeak in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LifeSpeak 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 LifeSpeak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LifeSpeak has no effect on the direction of S A P i.e., S A P and LifeSpeak go up and down completely randomly.

Pair Corralation between S A P and LifeSpeak

Considering the 90-day investment horizon SAP SE ADR is expected to generate 0.32 times more return on investment than LifeSpeak. However, SAP SE ADR is 3.17 times less risky than LifeSpeak. It trades about 0.16 of its potential returns per unit of risk. LifeSpeak is currently generating about -0.06 per unit of risk. If you would invest  21,260  in SAP SE ADR on September 5, 2024 and sell it today you would earn a total of  3,130  from holding SAP SE ADR or generate 14.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

SAP SE ADR  vs.  LifeSpeak

SAP SE ADR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

LifeSpeak

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LifeSpeak has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with S A P and LifeSpeak

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

The idea behind SAP SE ADR and LifeSpeak 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.