Correlation Between Summit Materials and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Summit Materials and Applied Materials 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 Summit Materials and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Summit Materials Cl and Applied Materials, you can compare the effects of market volatilities on Summit Materials and Applied Materials 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 Summit Materials with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Applied Materials.
Diversification Opportunities for Summit Materials and Applied Materials
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Summit and Applied is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials Cl and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Summit Materials 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 Summit Materials Cl are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Summit Materials i.e., Summit Materials and Applied Materials go up and down completely randomly.
Pair Corralation between Summit Materials and Applied Materials
Assuming the 90 days trading horizon Summit Materials Cl is expected to generate 0.97 times more return on investment than Applied Materials. However, Summit Materials Cl is 1.03 times less risky than Applied Materials. It trades about 0.07 of its potential returns per unit of risk. Applied Materials is currently generating about 0.06 per unit of risk. If you would invest 2,907 in Summit Materials Cl on August 27, 2024 and sell it today you would earn a total of 2,225 from holding Summit Materials Cl or generate 76.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 90.49% |
| Values | Daily Returns |
Summit Materials Cl vs. Applied Materials
Performance |
| Timeline |
| Summit Materials |
| Applied Materials |
Summit Materials and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Summit Materials and Applied Materials
The main advantage of trading using opposite Summit Materials and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| Summit Materials vs. Samsung Electronics Co | Summit Materials vs. Samsung Electronics Co | Summit Materials vs. Hyundai Motor | Summit Materials vs. Toyota Motor Corp |
| Applied Materials vs. Samsung Electronics Co | Applied Materials vs. Samsung Electronics Co | Applied Materials vs. Hyundai Motor | Applied Materials vs. Toyota Motor Corp |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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