Correlation Between S A P and Shopify

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

Diversification Opportunities for S A P and Shopify

0.49

Correlation Coefficient

S A P  Shopify

Very weak diversification

The 3 months correlation between SAP and Shopify is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of S A P i.e., S A P and Shopify go up and down completely randomly.

Pair Corralation between S A P and Shopify

Considering the 90-day investment horizon SAP SE ADR is expected to generate 0.51 times more return on investment than Shopify. However, SAP SE ADR is 1.95 times less risky than Shopify. It trades about 0.08 of its potential returns per unit of risk. Shopify is currently generating about 0.0 per unit of risk. If you would invest  24,883  in SAP SE ADR on December 28, 2024 and sell it today you would earn a total of  1,917  from holding SAP SE ADR or generate 7.7% return on investment over 90 days.

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

SAP SE ADR  vs.  Shopify

SAP SE ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 6 (%) 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.

Shopify

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Shopify is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with S A P and Shopify

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

The idea behind SAP SE ADR and Shopify 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.