Correlation Between Applied Materials and Chevron Corp

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

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

Diversification Opportunities for Applied Materials and Chevron Corp

-0.27

Correlation Coefficient

Applied Materials  Chevron Corp

Very good diversification

The 3 months correlation between Applied and Chevron is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Applied Materials i.e., Applied Materials and Chevron Corp go up and down completely randomly.

Pair Corralation between Applied Materials and Chevron Corp

Assuming the 90 days trading horizon Applied Materials is expected to generate 0.71 times more return on investment than Chevron Corp. However, Applied Materials is 1.41 times less risky than Chevron Corp. It trades about 0.02 of its potential returns per unit of risk. Chevron Corp is currently generating about -0.14 per unit of risk. If you would invest  347,500  in Applied Materials on October 6, 2024 and sell it today you would earn a total of  1,000.00  from holding Applied Materials or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Applied Materials  vs.  Chevron Corp

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

Chevron Corp

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Applied Materials and Chevron Corp

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

The idea behind Applied Materials and Chevron Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.