Correlation Between SAP SE and Zonetail

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

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

Diversification Opportunities for SAP SE and Zonetail

-0.52

Correlation Coefficient

SAP SE  Zonetail

Excellent diversification

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

Pair Corralation between SAP SE and Zonetail

Assuming the 90 days horizon SAP SE is expected to generate 1.69 times less return on investment than Zonetail. But when comparing it to its historical volatility, SAP SE is 9.01 times less risky than Zonetail. It trades about 0.2 of its potential returns per unit of risk. Zonetail is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.02  in Zonetail on September 12, 2024 and sell it today you would lose (0.12) from holding Zonetail or give up 11.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

SAP SE  vs.  Zonetail

SAP SE

Risk-Adjusted Performance

10 of 100

Good

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

Zonetail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zonetail 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 essential indicators 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 SAP SE and Zonetail

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

The idea behind SAP SE and Zonetail 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.