Correlation Between Tesla and SAP SE
Can any of the company-specific risk be diversified away by investing in both Tesla and SAP SE 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 Tesla and SAP SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and SAP SE, you can compare the effects of market volatilities on Tesla and SAP SE 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 Tesla with a short position of SAP SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and SAP SE.
Diversification Opportunities for Tesla and SAP SE
Very poor diversification
The 3 months correlation between Tesla and SAP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Tesla 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 Tesla Inc are associated (or correlated) with SAP SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Tesla i.e., Tesla and SAP SE go up and down completely randomly.
Pair Corralation between Tesla and SAP SE
Assuming the 90 days trading horizon Tesla Inc is expected to generate 3.41 times more return on investment than SAP SE. However, Tesla is 3.41 times more volatile than SAP SE. It trades about 0.34 of its potential returns per unit of risk. SAP SE is currently generating about 0.21 per unit of risk. If you would invest 692,906 in Tesla Inc on September 25, 2024 and sell it today you would earn a total of 175,637 from holding Tesla Inc or generate 25.35% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Tesla Inc vs. SAP SE
Performance |
Timeline |
Tesla Inc |
SAP SE |
Tesla and SAP SE Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Tesla and SAP SE
The main advantage of trading using opposite Tesla and SAP SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, SAP SE 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 SAP SE will offset losses from the drop in SAP SE's long position.The idea behind Tesla Inc and SAP SE 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.SAP SE vs. Grupo Carso SAB | SAP SE vs. Cognizant Technology Solutions | SAP SE vs. Micron Technology | SAP SE vs. First Republic Bank |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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