Correlation Between Applied Materials and Vulcan Materials
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Vulcan Materials 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 Vulcan Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Vulcan Materials, you can compare the effects of market volatilities on Applied Materials and Vulcan Materials 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 Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Vulcan Materials.
Diversification Opportunities for Applied Materials and Vulcan Materials
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Applied and Vulcan is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Applied Materials i.e., Applied Materials and Vulcan Materials go up and down completely randomly.
Pair Corralation between Applied Materials and Vulcan Materials
Assuming the 90 days horizon Applied Materials is expected to under-perform the Vulcan Materials. In addition to that, Applied Materials is 1.42 times more volatile than Vulcan Materials. It trades about -0.04 of its total potential returns per unit of risk. Vulcan Materials is currently generating about 0.07 per unit of volatility. If you would invest 23,108 in Vulcan Materials on August 28, 2024 and sell it today you would earn a total of 3,892 from holding Vulcan Materials or generate 16.84% 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. Vulcan Materials
Performance |
| Timeline |
| Applied Materials |
| Vulcan Materials |
Applied Materials and Vulcan Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Vulcan Materials
The main advantage of trading using opposite Applied Materials and Vulcan Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Vulcan Materials 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 Vulcan Materials will offset losses from the drop in Vulcan Materials' long position.| Applied Materials vs. Superior Plus Corp | Applied Materials vs. NMI Holdings | Applied Materials vs. Origin Agritech | Applied Materials vs. SIVERS SEMICONDUCTORS AB |
| Vulcan Materials vs. Superior Plus Corp | Vulcan Materials vs. NMI Holdings | Vulcan Materials vs. Origin Agritech | Vulcan Materials vs. SIVERS SEMICONDUCTORS AB |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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