Correlation Between Applied Materials and GlobalData PLC

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

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

Diversification Opportunities for Applied Materials and GlobalData PLC

-0.07

Correlation Coefficient

Applied Materials  GlobalData PLC

Good diversification

The 3 months correlation between Applied and GlobalData is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and GlobalData PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlobalData PLC 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 GlobalData PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlobalData PLC has no effect on the direction of Applied Materials i.e., Applied Materials and GlobalData PLC go up and down completely randomly.

Pair Corralation between Applied Materials and GlobalData PLC

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.4 times more return on investment than GlobalData PLC. However, Applied Materials is 1.4 times more volatile than GlobalData PLC. It trades about 0.01 of its potential returns per unit of risk. GlobalData PLC is currently generating about -0.06 per unit of risk. If you would invest  18,200  in Applied Materials on September 4, 2024 and sell it today you would lose (129.00) from holding Applied Materials or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Applied Materials  vs.  GlobalData PLC

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 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.

GlobalData PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalData PLC 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 GlobalData PLC

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

The idea behind Applied Materials and GlobalData PLC 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.