Correlation Between SAP SE and Smith AO

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

By analyzing existing cross correlation between SAP SE and Smith AO, you can compare the effects of market volatilities on SAP SE and Smith AO 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 Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAP SE and Smith AO.

Diversification Opportunities for SAP SE and Smith AO

-0.42

Correlation Coefficient

SAP SE  Smith AO

Very good diversification

The 3 months correlation between SAP and Smith is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO 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 Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of SAP SE i.e., SAP SE and Smith AO go up and down completely randomly.

Pair Corralation between SAP SE and Smith AO

Assuming the 90 days horizon SAP SE is expected to under-perform the Smith AO. But the pink sheet apears to be less risky and, when comparing its historical volatility, SAP SE is 1.16 times less risky than Smith AO. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Smith AO is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,017  in Smith AO on May 19, 2025 and sell it today you would earn a total of  204.00  from holding Smith AO or generate 2.91% return on investment over 90 days.

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

SAP SE  vs.  Smith AO

SAP SE

Risk-Adjusted Performance

Weakest

Over the last 90 days SAP SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Smith AO

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smith AO are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smith AO is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SAP SE and Smith AO

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

The idea behind SAP SE and Smith AO 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.