Correlation Between Disco Corp and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Disco Corp 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 Disco Corp and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Disco Corp ADR and Applied Materials, you can compare the effects of market volatilities on Disco Corp 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 Disco Corp with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disco Corp and Applied Materials.
Diversification Opportunities for Disco Corp and Applied Materials
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Disco and Applied is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Disco Corp ADR and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Disco Corp 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 Disco Corp ADR 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 Disco Corp i.e., Disco Corp and Applied Materials go up and down completely randomly.
Pair Corralation between Disco Corp and Applied Materials
Assuming the 90 days horizon Disco Corp ADR is expected to generate 1.3 times more return on investment than Applied Materials. However, Disco Corp is 1.3 times more volatile than Applied Materials. It trades about 0.04 of its potential returns per unit of risk. Applied Materials is currently generating about -0.12 per unit of risk. If you would invest 2,627 in Disco Corp ADR on August 31, 2024 and sell it today you would earn a total of 105.00 from holding Disco Corp ADR or generate 4.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Disco Corp ADR vs. Applied Materials
Performance |
| Timeline |
| Disco Corp ADR |
| Applied Materials |
Disco Corp and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Disco Corp and Applied Materials
The main advantage of trading using opposite Disco Corp and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disco Corp 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.| Disco Corp vs. Asm Pacific Technology | Disco Corp vs. Tokyo Electron | Disco Corp vs. Lasertec | Disco Corp vs. Sumco Corp ADR |
| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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