Correlation Between Applied Materials and Tokyo Electron
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Tokyo Electron 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 Tokyo Electron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Tokyo Electron, you can compare the effects of market volatilities on Applied Materials and Tokyo Electron 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 Tokyo Electron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Tokyo Electron.
Diversification Opportunities for Applied Materials and Tokyo Electron
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Applied and Tokyo is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Applied Materials i.e., Applied Materials and Tokyo Electron go up and down completely randomly.
Pair Corralation between Applied Materials and Tokyo Electron
Given the investment horizon of 90 days Applied Materials is expected to generate 0.81 times more return on investment than Tokyo Electron. However, Applied Materials is 1.24 times less risky than Tokyo Electron. It trades about 0.05 of its potential returns per unit of risk. Tokyo Electron is currently generating about 0.04 per unit of risk. If you would invest 11,571 in Applied Materials on August 27, 2024 and sell it today you would earn a total of 5,917 from holding Applied Materials or generate 51.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. Tokyo Electron
Performance |
| Timeline |
| Applied Materials |
| Tokyo Electron |
Applied Materials and Tokyo Electron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Tokyo Electron
The main advantage of trading using opposite Applied Materials and Tokyo Electron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Tokyo Electron 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 Tokyo Electron will offset losses from the drop in Tokyo Electron's long position.| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
| Tokyo Electron vs. Cleantech Power Corp | Tokyo Electron vs. National Beverage Corp | Tokyo Electron vs. China Clean Energy | Tokyo Electron vs. Sun Life Financial |
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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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