Correlation Between S A P and Laureate Education

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

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

Diversification Opportunities for S A P and Laureate Education

0.73

Correlation Coefficient

S A P  Laureate Education

Poor diversification

The 3 months correlation between SAP and Laureate is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Laureate Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laureate Education 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 Laureate Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laureate Education has no effect on the direction of S A P i.e., S A P and Laureate Education go up and down completely randomly.

Pair Corralation between S A P and Laureate Education

Assuming the 90 days trading horizon S A P is expected to generate 1.05 times less return on investment than Laureate Education. But when comparing it to its historical volatility, SAP SE is 1.63 times less risky than Laureate Education. It trades about 0.15 of its potential returns per unit of risk. Laureate Education is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,380  in Laureate Education on September 4, 2024 and sell it today you would earn a total of  400.00  from holding Laureate Education or generate 28.99% return on investment over 90 days.

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

SAP SE  vs.  Laureate Education

SAP SE

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 17 (%) 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.

Laureate Education

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Laureate Education are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Laureate Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and Laureate Education

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

The idea behind SAP SE and Laureate Education 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.