Correlation Between Applied Materials, and United Parcel

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

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

Diversification Opportunities for Applied Materials, and United Parcel

-0.41

Correlation Coefficient

Applied Materials,  United Parcel

Very good diversification

The 3 months correlation between Applied and United is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials, and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Applied Materials, i.e., Applied Materials, and United Parcel go up and down completely randomly.

Pair Corralation between Applied Materials, and United Parcel

Assuming the 90 days trading horizon Applied Materials, is expected to generate 1.3 times more return on investment than United Parcel. However, Applied Materials, is 1.3 times more volatile than United Parcel Service. It trades about 0.1 of its potential returns per unit of risk. United Parcel Service is currently generating about 0.03 per unit of risk. If you would invest  10,274  in Applied Materials, on October 12, 2024 and sell it today you would earn a total of  346.00  from holding Applied Materials, or generate 3.37% 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.  United Parcel Service

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 latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

United Parcel Service

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Parcel Service are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, United Parcel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials, and United Parcel

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

The idea behind Applied Materials, and United Parcel Service 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.