Correlation Between Roche Holding and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Roche Holding 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 Roche Holding and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Roche Holding AG and Applied Materials, you can compare the effects of market volatilities on Roche Holding 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 Roche Holding with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roche Holding and Applied Materials.
Diversification Opportunities for Roche Holding and Applied Materials
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Roche and Applied is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Roche Holding 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 Roche Holding AG 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 Roche Holding i.e., Roche Holding and Applied Materials go up and down completely randomly.
Pair Corralation between Roche Holding and Applied Materials
Assuming the 90 days trading horizon Roche Holding is expected to generate 1.73 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Roche Holding AG is 1.27 times less risky than Applied Materials. It trades about 0.36 of its potential returns per unit of risk. Applied Materials is currently generating about 0.5 of returns per unit of risk over similar time horizon. If you would invest 329,300 in Applied Materials on October 21, 2024 and sell it today you would earn a total of 69,900 from holding Applied Materials or generate 21.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Roche Holding AG vs. Applied Materials
Performance |
| Timeline |
| Roche Holding AG |
| Applied Materials |
Roche Holding and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Roche Holding and Applied Materials
The main advantage of trading using opposite Roche Holding and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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.| Roche Holding vs. Grupo Sports World | Roche Holding vs. Micron Technology | Roche Holding vs. United Airlines Holdings | Roche Holding vs. Grupo Hotelero Santa |
| Applied Materials vs. UnitedHealth Group Incorporated | Applied Materials vs. Cognizant Technology Solutions | Applied Materials vs. KB Home | Applied Materials vs. Grupo Sports World |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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