Correlation Between Applied Materials and Lam Research
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Lam Research 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 Lam Research into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Lam Research, you can compare the effects of market volatilities on Applied Materials and Lam Research 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 Lam Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Lam Research.
Diversification Opportunities for Applied Materials and Lam Research
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Applied and Lam is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Lam Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research has no effect on the direction of Applied Materials i.e., Applied Materials and Lam Research go up and down completely randomly.
Pair Corralation between Applied Materials and Lam Research
Assuming the 90 days horizon Applied Materials is expected to under-perform the Lam Research. In addition to that, Applied Materials is 1.41 times more volatile than Lam Research. It trades about -0.02 of its total potential returns per unit of risk. Lam Research is currently generating about 0.0 per unit of volatility. If you would invest 7,040 in Lam Research on August 28, 2024 and sell it today you would lose (33.00) from holding Lam Research or give up 0.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Applied Materials vs. Lam Research
Performance |
| Timeline |
| Applied Materials |
| Lam Research |
Applied Materials and Lam Research Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Lam Research
The main advantage of trading using opposite Applied Materials and Lam Research positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Lam Research 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 Lam Research will offset losses from the drop in Lam Research's long position.| Applied Materials vs. Superior Plus Corp | Applied Materials vs. NMI Holdings | Applied Materials vs. Origin Agritech | Applied Materials vs. SIVERS SEMICONDUCTORS AB |
| Lam Research vs. Transportadora de Gas | Lam Research vs. Texas Roadhouse | Lam Research vs. Broadcom | Lam Research vs. Harmony Gold Mining |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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