Correlation Between Retail Estates and SAP SE

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

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

Diversification Opportunities for Retail Estates and SAP SE

-0.81

Correlation Coefficient

Retail Estates  SAP SE

Pay attention - limited upside

The 3 months correlation between Retail and SAP is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE and Retail Estates 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 Retail Estates NV 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 Retail Estates i.e., Retail Estates and SAP SE go up and down completely randomly.

Pair Corralation between Retail Estates and SAP SE

Assuming the 90 days horizon Retail Estates NV is expected to under-perform the SAP SE. But the stock apears to be less risky and, when comparing its historical volatility, Retail Estates NV is 1.59 times less risky than SAP SE. The stock trades about -0.12 of its potential returns per unit of risk. The SAP SE is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19,800  in SAP SE on September 3, 2024 and sell it today you would earn a total of  2,400  from holding SAP SE or generate 12.12% return on investment over 90 days.

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

Retail Estates NV  vs.  SAP SE

Retail Estates NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Estates NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

SAP SE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SAP SE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Retail Estates and SAP SE

The main advantage of trading using opposite Retail Estates and SAP SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retail Estates 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 Retail Estates NV 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.