Correlation Between S A P and BASF SE

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

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

Diversification Opportunities for S A P and BASF SE

-0.31

Correlation Coefficient

S A P  BASF SE

Very good diversification

The 3 months correlation between SAP and BASF is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and S A P 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 BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of S A P i.e., S A P and BASF SE go up and down completely randomly.

Pair Corralation between S A P and BASF SE

Assuming the 90 days horizon SAP SE is expected to generate 0.75 times more return on investment than BASF SE. However, SAP SE is 1.33 times less risky than BASF SE. It trades about 0.16 of its potential returns per unit of risk. BASF SE is currently generating about -0.02 per unit of risk. If you would invest  19,756  in SAP SE on September 3, 2024 and sell it today you would earn a total of  2,719  from holding SAP SE or generate 13.76% 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.  BASF SE

SAP SE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with S A P and BASF SE

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

The idea behind SAP SE and BASF 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.