Correlation Between Auto Trader and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Auto Trader and Applied 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 Auto Trader and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Auto Trader Group and Applied Materials, you can compare the effects of market volatilities on Auto Trader and Applied 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 Auto Trader with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Applied Materials.
Diversification Opportunities for Auto Trader and Applied Materials
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Auto and Applied is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Auto Trader 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 Auto Trader Group are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Auto Trader i.e., Auto Trader and Applied Materials go up and down completely randomly.
Pair Corralation between Auto Trader and Applied Materials
Assuming the 90 days trading horizon Auto Trader is expected to generate 1.34 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Auto Trader Group is 1.69 times less risky than Applied Materials. It trades about 0.06 of its potential returns per unit of risk. Applied Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 11,006 in Applied Materials on September 3, 2024 and sell it today you would earn a total of 6,644 from holding Applied Materials or generate 60.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
Auto Trader Group vs. Applied Materials
Performance |
| Timeline |
| Auto Trader Group |
| Applied Materials |
Auto Trader and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Auto Trader and Applied Materials
The main advantage of trading using opposite Auto Trader and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, Applied 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| Auto Trader vs. Applied Materials | Auto Trader vs. Evolution Gaming Group | Auto Trader vs. Air Products Chemicals | Auto Trader vs. Omega Healthcare Investors |
| Applied Materials vs. SMA Solar Technology | Applied Materials vs. Arcticzymes Technologies ASA | Applied Materials vs. DXC Technology Co | Applied Materials vs. Waste Management |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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