Correlation Between SAP SE and DISTRICT METALS

Can any of the company-specific risk be diversified away by investing in both SAP SE and DISTRICT METALS 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 SAP SE and DISTRICT METALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SAP SE and DISTRICT METALS, you can compare the effects of market volatilities on SAP SE and DISTRICT METALS 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 SAP SE with a short position of DISTRICT METALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAP SE and DISTRICT METALS.

Diversification Opportunities for SAP SE and DISTRICT METALS

0.27

Correlation Coefficient

SAP SE  DISTRICT METALS

Modest diversification

The 3 months correlation between SAP and DISTRICT is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and DISTRICT METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DISTRICT METALS and SAP SE 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 are associated (or correlated) with DISTRICT METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DISTRICT METALS has no effect on the direction of SAP SE i.e., SAP SE and DISTRICT METALS go up and down completely randomly.

Pair Corralation between SAP SE and DISTRICT METALS

Assuming the 90 days trading horizon SAP SE is expected to generate 2.74 times less return on investment than DISTRICT METALS. But when comparing it to its historical volatility, SAP SE is 2.63 times less risky than DISTRICT METALS. It trades about 0.22 of its potential returns per unit of risk. DISTRICT METALS is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  20.00  in DISTRICT METALS on September 15, 2024 and sell it today you would earn a total of  4.00  from holding DISTRICT METALS or generate 20.0% return on investment over 90 days.

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

SAP SE  vs.  DISTRICT METALS

SAP SE

Risk-Adjusted Performance

12 of 100

Good

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

DISTRICT METALS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DISTRICT METALS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DISTRICT METALS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SAP SE and DISTRICT METALS

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

The idea behind SAP SE and DISTRICT METALS 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.