Correlation Between S A P and Aspen Technology

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

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

Diversification Opportunities for S A P and Aspen Technology

0.72

Correlation Coefficient

S A P  Aspen Technology

Poor diversification

The 3 months correlation between SAP and Aspen is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology 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 ADR are associated (or correlated) with Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of S A P i.e., S A P and Aspen Technology go up and down completely randomly.

Pair Corralation between S A P and Aspen Technology

Considering the 90-day investment horizon SAP SE ADR is expected to generate 1.91 times more return on investment than Aspen Technology. However, S A P is 1.91 times more volatile than Aspen Technology. It trades about 0.31 of its potential returns per unit of risk. Aspen Technology is currently generating about 0.09 per unit of risk. If you would invest  23,130  in SAP SE ADR on September 19, 2024 and sell it today you would earn a total of  1,967  from holding SAP SE ADR or generate 8.5% return on investment over 90 days.

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

SAP SE ADR  vs.  Aspen Technology

SAP SE ADR

Risk-Adjusted Performance

8 of 100

OK

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

Aspen Technology

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Aspen Technology is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with S A P and Aspen Technology

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

The idea behind SAP SE ADR and Aspen Technology 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.