Correlation Between VTEX and S A P

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

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

Diversification Opportunities for VTEX and S A P

-0.7

Correlation Coefficient

VTEX  S A P

Excellent diversification

The 3 months correlation between VTEX and SAP is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding VTEX and SAP SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE ADR and VTEX 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 VTEX are associated (or correlated) with S A P. 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 ADR has no effect on the direction of VTEX i.e., VTEX and S A P go up and down completely randomly.

Pair Corralation between VTEX and S A P

Given the investment horizon of 90 days VTEX is expected to under-perform the S A P. In addition to that, VTEX is 1.44 times more volatile than SAP SE ADR. It trades about -0.13 of its total potential returns per unit of risk. SAP SE ADR is currently generating about 0.09 per unit of volatility. If you would invest  23,093  in SAP SE ADR on September 24, 2024 and sell it today you would earn a total of  1,793  from holding SAP SE ADR or generate 7.76% return on investment over 90 days.

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

VTEX  vs.  SAP SE ADR

VTEX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VTEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SAP SE ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE ADR are ranked lower than 6 (%) 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.

Pair Trading with VTEX and S A P

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

The idea behind VTEX and SAP SE ADR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.