Correlation Between S A P and Appswarm

Can any of the company-specific risk be diversified away by investing in both S A P and Appswarm 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 Appswarm 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 Appswarm, you can compare the effects of market volatilities on S A P and Appswarm 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 Appswarm. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Appswarm.

Diversification Opportunities for S A P and Appswarm

-0.34

Correlation Coefficient

S A P  Appswarm

Very good diversification

The 3 months correlation between SAP and Appswarm is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE ADR and Appswarm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Appswarm 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 Appswarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Appswarm has no effect on the direction of S A P i.e., S A P and Appswarm go up and down completely randomly.

Pair Corralation between S A P and Appswarm

Considering the 90-day investment horizon S A P is expected to generate 5.62 times less return on investment than Appswarm. But when comparing it to its historical volatility, SAP SE ADR is 11.98 times less risky than Appswarm. It trades about 0.13 of its potential returns per unit of risk. Appswarm is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.10  in Appswarm on September 14, 2024 and sell it today you would lose (0.07) from holding Appswarm or give up 70.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

SAP SE ADR  vs.  Appswarm

SAP SE ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

Appswarm

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Appswarm are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Appswarm displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and Appswarm

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

The idea behind SAP SE ADR and Appswarm 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.