Correlation Between Applied Materials and L3Harris Technologies

Can any of the company-specific risk be diversified away by investing in both Applied Materials and L3Harris Technologies 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 L3Harris Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and L3Harris Technologies, you can compare the effects of market volatilities on Applied Materials and L3Harris Technologies 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 L3Harris Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and L3Harris Technologies.

Diversification Opportunities for Applied Materials and L3Harris Technologies

0.23

Correlation Coefficient

Applied Materials  L3Harris Technologies

Modest diversification

The 3 months correlation between Applied and L3Harris is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and L3Harris Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L3Harris Technologies 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 L3Harris Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L3Harris Technologies has no effect on the direction of Applied Materials i.e., Applied Materials and L3Harris Technologies go up and down completely randomly.

Pair Corralation between Applied Materials and L3Harris Technologies

Assuming the 90 days trading horizon Applied Materials is expected to generate 2.02 times more return on investment than L3Harris Technologies. However, Applied Materials is 2.02 times more volatile than L3Harris Technologies. It trades about -0.05 of its potential returns per unit of risk. L3Harris Technologies is currently generating about -0.49 per unit of risk. If you would invest  16,744  in Applied Materials on September 21, 2024 and sell it today you would lose (544.00) from holding Applied Materials or give up 3.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Applied Materials  vs.  L3Harris Technologies

Applied Materials

Risk-Adjusted Performance

0 of 100

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

L3Harris Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days L3Harris Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Applied Materials and L3Harris Technologies

The main advantage of trading using opposite Applied Materials and L3Harris Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, L3Harris Technologies 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 L3Harris Technologies will offset losses from the drop in L3Harris Technologies' long position.

The idea behind Applied Materials and L3Harris Technologies 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.