Correlation Between TERADATA and Applied Materials

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

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

Diversification Opportunities for TERADATA and Applied Materials

0.01

Correlation Coefficient

TERADATA  Applied Materials

Significant diversification

The 3 months correlation between TERADATA and Applied is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding TERADATA and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and TERADATA 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 TERADATA 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 TERADATA i.e., TERADATA and Applied Materials go up and down completely randomly.

Pair Corralation between TERADATA and Applied Materials

Assuming the 90 days trading horizon TERADATA is expected to generate 0.5 times more return on investment than Applied Materials. However, TERADATA is 2.0 times less risky than Applied Materials. It trades about 0.19 of its potential returns per unit of risk. Applied Materials is currently generating about -0.03 per unit of risk. If you would invest  2,540  in TERADATA on August 31, 2024 and sell it today you would earn a total of  420.00  from holding TERADATA or generate 16.54% return on investment over 90 days.

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

TERADATA  vs.  Applied Materials

TERADATA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TERADATA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TERADATA unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TERADATA and Applied Materials

The main advantage of trading using opposite TERADATA and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TERADATA 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 TERADATA 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.