Correlation Between Acadia Healthcare and Applied Materials

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

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

Diversification Opportunities for Acadia Healthcare and Applied Materials

0.42

Correlation Coefficient

Acadia Healthcare  Applied Materials

Very weak diversification

The 3 months correlation between Acadia and Applied is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Acadia Healthcare 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 Acadia Healthcare 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 Acadia Healthcare i.e., Acadia Healthcare and Applied Materials go up and down completely randomly.

Pair Corralation between Acadia Healthcare and Applied Materials

Assuming the 90 days horizon Acadia Healthcare is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, Acadia Healthcare is 1.01 times less risky than Applied Materials. The stock trades about -0.03 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  10,792  in Applied Materials on October 26, 2024 and sell it today you would earn a total of  7,020  from holding Applied Materials or generate 65.05% return on investment over 90 days.

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

Acadia Healthcare  vs.  Applied Materials

Acadia Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acadia Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Applied Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Acadia Healthcare and Applied Materials

The main advantage of trading using opposite Acadia Healthcare and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Acadia Healthcare 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 Acadia Healthcare 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.