Correlation Between Visa and S A P
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa 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 Visa Class A and SAP SE ADR, you can compare the effects of market volatilities on Visa 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 Visa with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and S A P.
Diversification Opportunities for Visa and S A P
Poor diversification
The 3 months correlation between Visa and SAP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and S A P go up and down completely randomly.
Pair Corralation between Visa and S A P
Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the S A P. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.58 times less risky than S A P. The stock trades about -0.03 of its potential returns per unit of risk. The SAP SE ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 17,660 in SAP SE ADR on January 20, 2024 and sell it today you would earn a total of 204.00 from holding SAP SE ADR or generate 1.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.67% |
| Values | Daily Returns |
Visa Class A vs. SAP SE ADR
Performance |
| Timeline |
| Visa Class A |
| SAP SE ADR |
Visa and S A P Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and S A P
The main advantage of trading using opposite Visa and S A P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.| Visa vs. American Express | Visa vs. Capital One Financial | Visa vs. Upstart HoldingsInc | Visa vs. Ally Financial |
| S A P vs. Tyler Technologies | S A P vs. Roper Technologies Common | S A P vs. Cadence Design Systems | S A P vs. PTC Inc |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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