Correlation Between Applied Materials and CAP LEASE

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

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

Diversification Opportunities for Applied Materials and CAP LEASE

0.77

Correlation Coefficient

Applied Materials  CAP LEASE

Poor diversification

The 3 months correlation between Applied and CAP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and CAP LEASE AVIATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAP LEASE AVIATION 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 CAP LEASE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAP LEASE AVIATION has no effect on the direction of Applied Materials i.e., Applied Materials and CAP LEASE go up and down completely randomly.

Pair Corralation between Applied Materials and CAP LEASE

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.16 times more return on investment than CAP LEASE. However, Applied Materials is 1.16 times more volatile than CAP LEASE AVIATION. It trades about 0.02 of its potential returns per unit of risk. CAP LEASE AVIATION is currently generating about -0.03 per unit of risk. If you would invest  15,428  in Applied Materials on October 5, 2024 and sell it today you would earn a total of  1,087  from holding Applied Materials or generate 7.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.25%
Values	Daily Returns

Applied Materials  vs.  CAP LEASE AVIATION

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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

CAP LEASE AVIATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAP LEASE AVIATION 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Applied Materials and CAP LEASE

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

The idea behind Applied Materials and CAP LEASE AVIATION 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.