Correlation Between Target and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Target 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 Target and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target and Applied Materials, you can compare the effects of market volatilities on Target 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 Target with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and Applied Materials.
Diversification Opportunities for Target and Applied Materials
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Target and Applied is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Target and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Target 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 Target 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 Target i.e., Target and Applied Materials go up and down completely randomly.
Pair Corralation between Target and Applied Materials
Assuming the 90 days trading horizon Target is expected to under-perform the Applied Materials. In addition to that, Target is 1.58 times more volatile than Applied Materials. It trades about -0.13 of its total potential returns per unit of risk. Applied Materials is currently generating about 0.02 per unit of volatility. If you would invest 359,138 in Applied Materials on August 24, 2024 and sell it today you would earn a total of 2,147 from holding Applied Materials or generate 0.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target vs. Applied Materials
Performance |
| Timeline |
| Target |
| Applied Materials |
Target and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target and Applied Materials
The main advantage of trading using opposite Target and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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.The idea behind Target and Applied Materials pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Applied Materials vs. The Select Sector | Applied Materials vs. Promotora y Operadora | Applied Materials vs. iShares Global Timber | Applied Materials vs. SPDR Series Trust |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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