Correlation Between Lam Research and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Lam Research 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 Lam Research and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lam Research Corp and Applied Materials, you can compare the effects of market volatilities on Lam Research 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 Lam Research with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Research and Applied Materials.
Diversification Opportunities for Lam Research and Applied Materials
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lam and Applied is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Lam Research 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 Lam Research Corp 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 Lam Research i.e., Lam Research and Applied Materials go up and down completely randomly.
Pair Corralation between Lam Research and Applied Materials
Given the investment horizon of 90 days Lam Research Corp is expected to generate 1.09 times more return on investment than Applied Materials. However, Lam Research is 1.09 times more volatile than Applied Materials. It trades about 0.08 of its potential returns per unit of risk. Applied Materials is currently generating about 0.04 per unit of risk. If you would invest 7,262 in Lam Research Corp on October 20, 2024 and sell it today you would earn a total of 768.00 from holding Lam Research Corp or generate 10.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lam Research Corp vs. Applied Materials
Performance |
| Timeline |
| Lam Research Corp |
| Applied Materials |
Lam Research and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lam Research and Applied Materials
The main advantage of trading using opposite Lam Research and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lam Research 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.| Lam Research vs. ASML Holding NV | Lam Research vs. KLA Tencor | Lam Research vs. Axcelis Technologies | Lam Research vs. Teradyne |
| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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