Correlation Between Applied Materials and Flow Traders

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

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

Diversification Opportunities for Applied Materials and Flow Traders

0.19

Correlation Coefficient

Applied Materials  Flow Traders

Average diversification

The 3 months correlation between Applied and Flow is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Flow Traders NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flow Traders NV 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 Flow Traders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flow Traders NV has no effect on the direction of Applied Materials i.e., Applied Materials and Flow Traders go up and down completely randomly.

Pair Corralation between Applied Materials and Flow Traders

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.68 times more return on investment than Flow Traders. However, Applied Materials is 1.68 times more volatile than Flow Traders NV. It trades about 0.25 of its potential returns per unit of risk. Flow Traders NV is currently generating about 0.24 per unit of risk. If you would invest  16,677  in Applied Materials on October 26, 2024 and sell it today you would earn a total of  2,163  from holding Applied Materials or generate 12.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Applied Materials  vs.  Flow Traders NV

Applied Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Flow Traders NV

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Flow Traders

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

The idea behind Applied Materials and Flow Traders NV 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.