Correlation Between Applied Materials, and ConocoPhillips

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

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

Diversification Opportunities for Applied Materials, and ConocoPhillips

0.04

Correlation Coefficient

Applied Materials,  ConocoPhillips

Significant diversification

The 3 months correlation between Applied and ConocoPhillips is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials, and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Applied Materials, i.e., Applied Materials, and ConocoPhillips go up and down completely randomly.

Pair Corralation between Applied Materials, and ConocoPhillips

Assuming the 90 days trading horizon Applied Materials, is expected to under-perform the ConocoPhillips. In addition to that, Applied Materials, is 1.5 times more volatile than ConocoPhillips. It trades about -0.01 of its total potential returns per unit of risk. ConocoPhillips is currently generating about 0.01 per unit of volatility. If you would invest  5,250  in ConocoPhillips on October 7, 2024 and sell it today you would earn a total of  3.00  from holding ConocoPhillips or generate 0.06% return on investment over 90 days.

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

Applied Materials,  vs.  ConocoPhillips

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 somewhat strong primary indicators, Applied Materials, is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ConocoPhillips is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials, and ConocoPhillips

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

The idea behind Applied Materials, and ConocoPhillips 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.