Correlation Between APA and Sapiens International

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

By analyzing existing cross correlation between APA Corporation and Sapiens International, you can compare the effects of market volatilities on APA and Sapiens International 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 APA with a short position of Sapiens International. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Sapiens International.

Diversification Opportunities for APA and Sapiens International

0.7

Correlation Coefficient

APA  Sapiens International

Poor diversification

The 3 months correlation between APA and Sapiens is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Sapiens International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapiens International and APA 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 APA Corporation are associated (or correlated) with Sapiens International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapiens International has no effect on the direction of APA i.e., APA and Sapiens International go up and down completely randomly.

Pair Corralation between APA and Sapiens International

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Sapiens International. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.65 times less risky than Sapiens International. The stock trades about -0.36 of its potential returns per unit of risk. The Sapiens International is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,157  in Sapiens International on January 29, 2024 and sell it today you would lose (27.00) from holding Sapiens International or give up 0.86% of portfolio value over 90 days.

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

APA Corp.  vs.  Sapiens International

APA Corporation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in APA Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Sapiens International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sapiens International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Sapiens International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with APA and Sapiens International

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

The idea behind APA Corporation and Sapiens International 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.