Correlation Between Applied Materials and Plastic Omnium
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Plastic Omnium 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 Plastic Omnium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Plastic Omnium, you can compare the effects of market volatilities on Applied Materials and Plastic Omnium 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 Plastic Omnium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Plastic Omnium.
Diversification Opportunities for Applied Materials and Plastic Omnium
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Applied and Plastic is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastic Omnium 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 Plastic Omnium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastic Omnium has no effect on the direction of Applied Materials i.e., Applied Materials and Plastic Omnium go up and down completely randomly.
Pair Corralation between Applied Materials and Plastic Omnium
Assuming the 90 days horizon Applied Materials is expected to generate 1.05 times more return on investment than Plastic Omnium. However, Applied Materials is 1.05 times more volatile than Plastic Omnium. It trades about -0.02 of its potential returns per unit of risk. Plastic Omnium is currently generating about -0.06 per unit of risk. If you would invest 19,095 in Applied Materials on August 31, 2024 and sell it today you would lose (2,217) from holding Applied Materials or give up 11.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. Plastic Omnium
Performance |
| Timeline |
| Applied Materials |
| Plastic Omnium |
Applied Materials and Plastic Omnium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Plastic Omnium
The main advantage of trading using opposite Applied Materials and Plastic Omnium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Plastic Omnium 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 Plastic Omnium will offset losses from the drop in Plastic Omnium's long position.| Applied Materials vs. ASML Holding NV | Applied Materials vs. Superior Plus Corp | Applied Materials vs. NMI Holdings | Applied Materials vs. Origin Agritech |
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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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