Correlation Between Applied Materials and First Solar

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

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

Diversification Opportunities for Applied Materials and First Solar

0.59

Correlation Coefficient

Applied Materials  First Solar

Very weak diversification

The 3 months correlation between Applied and First is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Applied Materials i.e., Applied Materials and First Solar go up and down completely randomly.

Pair Corralation between Applied Materials and First Solar

Assuming the 90 days trading horizon Applied Materials is expected to generate 0.9 times more return on investment than First Solar. However, Applied Materials is 1.11 times less risky than First Solar. It trades about -0.09 of its potential returns per unit of risk. First Solar is currently generating about -0.14 per unit of risk. If you would invest  353,450  in Applied Materials on September 25, 2024 and sell it today you would lose (15,650) from holding Applied Materials or give up 4.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Applied Materials  vs.  First Solar

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Applied Materials and First Solar

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

The idea behind Applied Materials and First Solar 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.