Correlation Between Insurance Australia and S A P

Can any of the company-specific risk be diversified away by investing in both Insurance Australia and S A P 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 Insurance Australia and S A P into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Insurance Australia and S A P

0.82

Correlation Coefficient

Insurance Australia  S A P

Very poor diversification

The 3 months correlation between Insurance and SAP is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Insurance Australia 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 Insurance Australia Group are associated (or correlated) with S A P. 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 Insurance Australia i.e., Insurance Australia and S A P go up and down completely randomly.

Pair Corralation between Insurance Australia and S A P

Assuming the 90 days horizon Insurance Australia is expected to generate 1.36 times less return on investment than S A P. In addition to that, Insurance Australia is 1.45 times more volatile than SAP SE. It trades about 0.09 of its total potential returns per unit of risk. SAP SE is currently generating about 0.17 per unit of volatility. If you would invest  20,685  in SAP SE on September 22, 2024 and sell it today you would earn a total of  2,990  from holding SAP SE or generate 14.45% return on investment over 90 days.

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

Insurance Australia Group  vs.  SAP SE

Insurance Australia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SAP SE

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, S A P unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insurance Australia and S A P

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

The idea behind Insurance Australia Group 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..