Correlation Between S A P and Shopify

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

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

Diversification Opportunities for S A P and Shopify

0.46
  Correlation Coefficient
SAP Ag ADR
Shopify

Very weak diversification

The 3 months correlation between S A P and Shopify is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding SAP Ag ADR and Shopify in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Ag ADR are associated (or correlated) with Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of S A P i.e., S A P and Shopify go up and down completely randomly.

Pair Corralation between S A P and Shopify

Considering the 90-day investment horizon S A P is expected to generate 1.27 times less return on investment than Shopify. But when comparing it to its historical volatility, SAP Ag ADR is 1.58 times less risky than Shopify. It trades about 0.08 of its potential returns per unit of risk. Shopify is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  146,098  in Shopify on May 1, 2021 and sell it today you would earn a total of  3,895  from holding Shopify or generate 2.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

SAP Ag ADR  vs.  Shopify

 Performance (%) 
      Timeline 
SAP Ag ADR 
 S A P Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SAP Ag ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, S A P is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the insiders.

S A P Price Channel

Shopify 
 Shopify Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

Shopify Price Channel

S A P and Shopify Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with S A P and Shopify

The main advantage of trading using opposite S A P and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P position performs unexpectedly, Shopify 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 Shopify will offset losses from the drop in Shopify's long position.
The idea behind SAP Ag ADR and Shopify 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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