Correlation Between Applied Materials and American International

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

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

Diversification Opportunities for Applied Materials and American International

-0.15

Correlation Coefficient

Applied Materials  American International

Good diversification

The 3 months correlation between Applied and American is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International 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 American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Applied Materials i.e., Applied Materials and American International go up and down completely randomly.

Pair Corralation between Applied Materials and American International

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the American International. In addition to that, Applied Materials is 5.78 times more volatile than American International Group. It trades about -0.03 of its total potential returns per unit of risk. American International Group is currently generating about -0.1 per unit of volatility. If you would invest  150,526  in American International Group on December 23, 2024 and sell it today you would lose (3,726) from holding American International Group or give up 2.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Applied Materials  vs.  American International Group

Applied Materials

Risk-Adjusted Performance

Very Weak

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

American International

Risk-Adjusted Performance

Very Weak

Over the last 90 days American International Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, American International 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 American International

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

The idea behind Applied Materials and American International Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.