Correlation Between Applied Materials and Allegro Microsystems
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Allegro Microsystems 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 Allegro Microsystems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Allegro Microsystems, you can compare the effects of market volatilities on Applied Materials and Allegro Microsystems 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 Allegro Microsystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Allegro Microsystems.
Diversification Opportunities for Applied Materials and Allegro Microsystems
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Applied and Allegro is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems 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 Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of Applied Materials i.e., Applied Materials and Allegro Microsystems go up and down completely randomly.
Pair Corralation between Applied Materials and Allegro Microsystems
Given the investment horizon of 90 days Applied Materials is expected to generate 0.81 times more return on investment than Allegro Microsystems. However, Applied Materials is 1.24 times less risky than Allegro Microsystems. It trades about -0.09 of its potential returns per unit of risk. Allegro Microsystems is currently generating about -0.09 per unit of risk. If you would invest 18,608 in Applied Materials on August 26, 2024 and sell it today you would lose (1,120) from holding Applied Materials or give up 6.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. Allegro Microsystems
Performance |
| Timeline |
| Applied Materials |
| Allegro Microsystems |
Applied Materials and Allegro Microsystems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Allegro Microsystems
The main advantage of trading using opposite Applied Materials and Allegro Microsystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Allegro Microsystems 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 Allegro Microsystems will offset losses from the drop in Allegro Microsystems' long position.| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
| Allegro Microsystems vs. Teradyne | Allegro Microsystems vs. IPG Photonics | Allegro Microsystems vs. Applied Materials |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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