Correlation Between S A P and Two Hands

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

Diversification Opportunities for S A P and Two Hands

0.07

Correlation Coefficient

S A P  Two Hands

Significant diversification

The 3 months correlation between SAP and Two is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Two Hands Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Hands 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 Two Hands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Hands Corp has no effect on the direction of S A P i.e., S A P and Two Hands go up and down completely randomly.

Pair Corralation between S A P and Two Hands

Considering the 90-day investment horizon S A P is expected to generate 302.45 times less return on investment than Two Hands. But when comparing it to its historical volatility, SAP SE ADR is 178.53 times less risky than Two Hands. It trades about 0.16 of its potential returns per unit of risk. Two Hands Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Two Hands Corp on September 15, 2024 and sell it today you would lose (0.01) from holding Two Hands Corp or give up 50.0% of portfolio value over 90 days.

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

SAP SE ADR  vs.  Two Hands Corp

SAP SE ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

Two Hands Corp

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Hands Corp are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Two Hands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and Two Hands

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

The idea behind SAP SE ADR and Two Hands 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.