Correlation Between Applied Materials and Alaska Air

Can any of the company-specific risk be diversified away by investing in both Applied Materials and Alaska Air 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 Applied Materials and Alaska Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and Alaska Air Group, you can compare the effects of market volatilities on Applied Materials and Alaska Air 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 Applied Materials with a short position of Alaska Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Alaska Air.

Diversification Opportunities for Applied Materials and Alaska Air

0.64

Correlation Coefficient

Applied Materials  Alaska Air

Poor diversification

The 3 months correlation between Applied and Alaska is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Applied Materials 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 Applied Materials are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Applied Materials i.e., Applied Materials and Alaska Air go up and down completely randomly.

Pair Corralation between Applied Materials and Alaska Air

Assuming the 90 days trading horizon Applied Materials is expected to generate 0.9 times more return on investment than Alaska Air. However, Applied Materials is 1.11 times less risky than Alaska Air. It trades about -0.04 of its potential returns per unit of risk. Alaska Air Group is currently generating about -0.12 per unit of risk. If you would invest  16,778  in Applied Materials on December 24, 2024 and sell it today you would lose (1,174) from holding Applied Materials or give up 7.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Applied Materials  vs.  Alaska Air Group

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Applied Materials is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Alaska Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alaska Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Applied Materials and Alaska Air

The main advantage of trading using opposite Applied Materials and Alaska Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Alaska Air 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 Alaska Air will offset losses from the drop in Alaska Air's long position.

The idea behind Applied Materials and Alaska Air Group 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.