Correlation Between Applied Materials and BHP Group
Can any of the company-specific risk be diversified away by investing in both Applied Materials and BHP Group 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 BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and BHP Group Limited, you can compare the effects of market volatilities on Applied Materials and BHP Group 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 BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and BHP Group.
Diversification Opportunities for Applied Materials and BHP Group
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Applied and BHP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited 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 BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Applied Materials i.e., Applied Materials and BHP Group go up and down completely randomly.
Pair Corralation between Applied Materials and BHP Group
Assuming the 90 days horizon Applied Materials is expected to generate 1.52 times more return on investment than BHP Group. However, Applied Materials is 1.52 times more volatile than BHP Group Limited. It trades about 0.06 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.01 per unit of risk. If you would invest 9,100 in Applied Materials on September 24, 2024 and sell it today you would earn a total of 6,706 from holding Applied Materials or generate 73.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. BHP Group Limited
Performance |
| Timeline |
| Applied Materials |
| BHP Group Limited |
Applied Materials and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and BHP Group
The main advantage of trading using opposite Applied Materials and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, BHP Group 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 BHP Group will offset losses from the drop in BHP Group's long position.| Applied Materials vs. ASML HOLDING NY | Applied Materials vs. ASML Holding NV | Applied Materials vs. ASML Holding NV | Applied Materials vs. Tokyo Electron Limited |
| BHP Group vs. Applied Materials | BHP Group vs. FLOW TRADERS LTD | BHP Group vs. NEWELL RUBBERMAID | BHP Group vs. TRADEDOUBLER AB SK |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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