Correlation Between Applied Materials and Tower Semiconductor
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Tower Semiconductor 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 Tower Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Tower Semiconductor, you can compare the effects of market volatilities on Applied Materials and Tower Semiconductor 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 Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Tower Semiconductor.
Diversification Opportunities for Applied Materials and Tower Semiconductor
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Applied and Tower is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Applied Materials i.e., Applied Materials and Tower Semiconductor go up and down completely randomly.
Pair Corralation between Applied Materials and Tower Semiconductor
Given the investment horizon of 90 days Applied Materials is expected to generate 2.35 times less return on investment than Tower Semiconductor. In addition to that, Applied Materials is 1.22 times more volatile than Tower Semiconductor. It trades about 0.04 of its total potential returns per unit of risk. Tower Semiconductor is currently generating about 0.11 per unit of volatility. If you would invest 2,786 in Tower Semiconductor on August 25, 2024 and sell it today you would earn a total of 1,997 from holding Tower Semiconductor or generate 71.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. Tower Semiconductor
Performance |
| Timeline |
| Applied Materials |
| Tower Semiconductor |
Applied Materials and Tower Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Tower Semiconductor
The main advantage of trading using opposite Applied Materials and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Tower Semiconductor 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 Tower Semiconductor will offset losses from the drop in Tower Semiconductor's long position.| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
| Tower Semiconductor vs. Teradyne | Tower Semiconductor vs. IPG Photonics | Tower Semiconductor 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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