Correlation Between SAP SE and Micron Technology

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

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

Diversification Opportunities for SAP SE and Micron Technology

-0.16

Correlation Coefficient

SAP SE  Micron Technology

Good diversification

The 3 months correlation between SAP and Micron is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of SAP SE i.e., SAP SE and Micron Technology go up and down completely randomly.

Pair Corralation between SAP SE and Micron Technology

Assuming the 90 days trading horizon SAP SE is expected to generate 0.62 times more return on investment than Micron Technology. However, SAP SE is 1.61 times less risky than Micron Technology. It trades about 0.11 of its potential returns per unit of risk. Micron Technology is currently generating about 0.05 per unit of risk. If you would invest  196,657  in SAP SE on September 26, 2024 and sell it today you would earn a total of  303,343  from holding SAP SE or generate 154.25% return on investment over 90 days.

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

SAP SE  vs.  Micron Technology

SAP SE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SAP SE showed solid returns over the last few months and may actually be approaching a breakup point.

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SAP SE and Micron Technology

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

The idea behind SAP SE and Micron Technology 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.