Correlation Between Applied Materials and Sage Group

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

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

Diversification Opportunities for Applied Materials and Sage Group

-0.48

Correlation Coefficient

Applied Materials  Sage Group

Very good diversification

The 3 months correlation between Applied and Sage is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group 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 Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Applied Materials i.e., Applied Materials and Sage Group go up and down completely randomly.

Pair Corralation between Applied Materials and Sage Group

Assuming the 90 days trading horizon Applied Materials is expected to generate 4.04 times less return on investment than Sage Group. In addition to that, Applied Materials is 1.05 times more volatile than Sage Group PLC. It trades about 0.04 of its total potential returns per unit of risk. Sage Group PLC is currently generating about 0.18 per unit of volatility. If you would invest  101,936  in Sage Group PLC on October 22, 2024 and sell it today you would earn a total of  29,664  from holding Sage Group PLC or generate 29.1% return on investment over 90 days.

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

Applied Materials  vs.  Sage Group PLC

Applied Materials

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sage Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Sage Group

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

The idea behind Applied Materials and Sage Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.