Correlation Between Applied Materials and METHODE ELECTRONICS
Can any of the company-specific risk be diversified away by investing in both Applied Materials and METHODE ELECTRONICS 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 METHODE ELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and METHODE ELECTRONICS, you can compare the effects of market volatilities on Applied Materials and METHODE ELECTRONICS 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 METHODE ELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and METHODE ELECTRONICS.
Diversification Opportunities for Applied Materials and METHODE ELECTRONICS
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Applied and METHODE is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and METHODE ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on METHODE ELECTRONICS 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 METHODE ELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of METHODE ELECTRONICS has no effect on the direction of Applied Materials i.e., Applied Materials and METHODE ELECTRONICS go up and down completely randomly.
Pair Corralation between Applied Materials and METHODE ELECTRONICS
Assuming the 90 days horizon Applied Materials is expected to generate 14.84 times less return on investment than METHODE ELECTRONICS. But when comparing it to its historical volatility, Applied Materials is 1.56 times less risky than METHODE ELECTRONICS. It trades about 0.03 of its potential returns per unit of risk. METHODE ELECTRONICS is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 840.00 in METHODE ELECTRONICS on September 3, 2024 and sell it today you would earn a total of 200.00 from holding METHODE ELECTRONICS or generate 23.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. METHODE ELECTRONICS
Performance |
| Timeline |
| Applied Materials |
| METHODE ELECTRONICS |
Applied Materials and METHODE ELECTRONICS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and METHODE ELECTRONICS
The main advantage of trading using opposite Applied Materials and METHODE ELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, METHODE ELECTRONICS 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 METHODE ELECTRONICS will offset losses from the drop in METHODE ELECTRONICS's long position.| Applied Materials vs. ASML HOLDING NY | Applied Materials vs. ASML Holding NV | Applied Materials vs. ASML Holding NV | Applied Materials vs. Lam Research |
| METHODE ELECTRONICS vs. TOTAL GABON | METHODE ELECTRONICS vs. Walgreens Boots Alliance | METHODE ELECTRONICS vs. Peak Resources Limited |
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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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