Correlation Between Applied Materials and Lindsell Train

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

Diversification Opportunities for Applied Materials and Lindsell Train

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Applied and Lindsell is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Lindsell Train Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindsell Train Investment and Applied 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 Applied Materials are associated (or correlated) with Lindsell Train. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindsell Train Investment has no effect on the direction of Applied Materials i.e., Applied Materials and Lindsell Train go up and down completely randomly.

Pair Corralation between Applied Materials and Lindsell Train

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Lindsell Train. In addition to that, Applied Materials is 2.22 times more volatile than Lindsell Train Investment. It trades about -0.12 of its total potential returns per unit of risk. Lindsell Train Investment is currently generating about 0.03 per unit of volatility. If you would invest  73,100  in Lindsell Train Investment on September 12, 2024 and sell it today you would earn a total of  600.00  from holding Lindsell Train Investment or generate 0.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Applied Materials  vs.  Lindsell Train Investment

 Performance 
       Timeline  
Applied Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Applied Materials is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Lindsell Train Investment 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lindsell Train Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Applied Materials and Lindsell Train Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Applied Materials and Lindsell Train

The main advantage of trading using opposite Applied Materials and Lindsell Train positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Lindsell Train 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 Lindsell Train will offset losses from the drop in Lindsell Train's long position.
The idea behind Applied Materials and Lindsell Train Investment 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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