Correlation Between SAP SE and Shopify

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Can any of the company-specific risk be diversified away by investing in both SAP SE 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 SAP SE and Shopify into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAP SE and Shopify, you can compare the effects of market volatilities on SAP SE 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 SAP SE with a short position of Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAP SE and Shopify.

Diversification Opportunities for SAP SE and Shopify

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between SAP and Shopify is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and SAP SE 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 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 SAP SE i.e., SAP SE and Shopify go up and down completely randomly.

Pair Corralation between SAP SE and Shopify

Assuming the 90 days horizon SAP SE is expected to generate 0.94 times more return on investment than Shopify. However, SAP SE is 1.06 times less risky than Shopify. It trades about 0.22 of its potential returns per unit of risk. Shopify is currently generating about -0.03 per unit of risk. If you would invest  17,463  in SAP SE on December 20, 2023 and sell it today you would earn a total of  1,285  from holding SAP SE or generate 7.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

SAP SE  vs.  Shopify

 Performance 
       Timeline  
SAP SE 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, SAP SE reported solid returns over the last few months and may actually be approaching a breakup point.
Shopify 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Shopify is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

SAP SE and Shopify Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SAP SE and Shopify

The main advantage of trading using opposite SAP SE and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAP SE 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 SE 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 the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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