Correlation Between Alaska Air and Applied Materials

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

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

Diversification Opportunities for Alaska Air and Applied Materials

-0.01

Correlation Coefficient

Alaska Air  Applied Materials

Good diversification

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

Pair Corralation between Alaska Air and Applied Materials

Assuming the 90 days trading horizon Alaska Air Group is expected to generate 1.01 times more return on investment than Applied Materials. However, Alaska Air is 1.01 times more volatile than Applied Materials. It trades about 0.28 of its potential returns per unit of risk. Applied Materials is currently generating about 0.07 per unit of risk. If you would invest  4,201  in Alaska Air Group on October 25, 2024 and sell it today you would earn a total of  2,283  from holding Alaska Air Group or generate 54.34% return on investment over 90 days.

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

Alaska Air Group  vs.  Applied Materials

Alaska Air Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 5 (%) 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 Alaska Air and Applied Materials

The main advantage of trading using opposite Alaska Air and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air 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 Alaska Air Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.