Correlation Between CNH Industrial and Applied Materials
Can any of the company-specific risk be diversified away by investing in both CNH Industrial 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 CNH Industrial and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CNH Industrial NV and Applied Materials, you can compare the effects of market volatilities on CNH Industrial 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 CNH Industrial with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNH Industrial and Applied Materials.
Diversification Opportunities for CNH Industrial and Applied Materials
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CNH and Applied is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and CNH Industrial 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 CNH Industrial NV 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 CNH Industrial i.e., CNH Industrial and Applied Materials go up and down completely randomly.
Pair Corralation between CNH Industrial and Applied Materials
Assuming the 90 days trading horizon CNH Industrial NV is expected to generate 1.27 times more return on investment than Applied Materials. However, CNH Industrial is 1.27 times more volatile than Applied Materials. It trades about 0.11 of its potential returns per unit of risk. Applied Materials is currently generating about -0.12 per unit of risk. If you would invest 1,055 in CNH Industrial NV on September 12, 2024 and sell it today you would earn a total of 90.00 from holding CNH Industrial NV or generate 8.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CNH Industrial NV vs. Applied Materials
Performance |
| Timeline |
| CNH Industrial NV |
| Applied Materials |
CNH Industrial and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CNH Industrial and Applied Materials
The main advantage of trading using opposite CNH Industrial and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial 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.| CNH Industrial vs. Hong Kong Land | CNH Industrial vs. Neometals | CNH Industrial vs. Coor Service Management | CNH Industrial vs. Fidelity Sustainable USD |
| Applied Materials vs. Hong Kong Land | Applied Materials vs. Neometals | Applied Materials vs. Coor Service Management | Applied Materials vs. Fidelity Sustainable USD |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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