Correlation Between Wyndham Hotels and Applied Materials

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

By analyzing existing cross correlation between Wyndham Hotels Resorts and Applied Materials, you can compare the effects of market volatilities on Wyndham Hotels and Applied Materials 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 Wyndham Hotels with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wyndham Hotels and Applied Materials.

Diversification Opportunities for Wyndham Hotels and Applied Materials

-0.32

Correlation Coefficient

Wyndham Hotels  Applied Materials

Very good diversification

The 3 months correlation between Wyndham and Applied is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Wyndham Hotels 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 Wyndham Hotels Resorts are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Wyndham Hotels i.e., Wyndham Hotels and Applied Materials go up and down completely randomly.

Pair Corralation between Wyndham Hotels and Applied Materials

Assuming the 90 days horizon Wyndham Hotels is expected to generate 1.67 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Wyndham Hotels Resorts is 1.54 times less risky than Applied Materials. It trades about 0.06 of its potential returns per unit of risk. Applied Materials is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,330  in Applied Materials on October 23, 2024 and sell it today you would earn a total of  8,484  from holding Applied Materials or generate 82.13% return on investment over 90 days.

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

Wyndham Hotels Resorts  vs.  Applied Materials

Wyndham Hotels Resorts

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wyndham Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Applied Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wyndham Hotels and Applied Materials

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

The idea behind Wyndham Hotels Resorts and Applied Materials 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.