Correlation Between Applied Materials and Diodes Incorporated
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Diodes Incorporated 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 Diodes Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Diodes Incorporated, you can compare the effects of market volatilities on Applied Materials and Diodes Incorporated 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 Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Diodes Incorporated.
Diversification Opportunities for Applied Materials and Diodes Incorporated
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Applied and Diodes is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated 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 Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Applied Materials i.e., Applied Materials and Diodes Incorporated go up and down completely randomly.
Pair Corralation between Applied Materials and Diodes Incorporated
Given the investment horizon of 90 days Applied Materials is expected to under-perform the Diodes Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.27 times less risky than Diodes Incorporated. The stock trades about -0.09 of its potential returns per unit of risk. The Diodes Incorporated is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 6,466 in Diodes Incorporated on August 26, 2024 and sell it today you would lose (335.00) from holding Diodes Incorporated or give up 5.18% 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. Diodes Incorporated
Performance |
| Timeline |
| Applied Materials |
| Diodes Incorporated |
Applied Materials and Diodes Incorporated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Diodes Incorporated
The main advantage of trading using opposite Applied Materials and Diodes Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Diodes Incorporated 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 Diodes Incorporated will offset losses from the drop in Diodes Incorporated's long position.| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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