Correlation Between Applied Materials and Alphabet

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

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

Diversification Opportunities for Applied Materials and Alphabet

-0.61

Correlation Coefficient

Applied Materials  Alphabet

Excellent diversification

The 3 months correlation between Applied and Alphabet is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Alphabet Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Applied Materials i.e., Applied Materials and Alphabet go up and down completely randomly.

Pair Corralation between Applied Materials and Alphabet

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.22 times less return on investment than Alphabet. In addition to that, Applied Materials is 1.29 times more volatile than Alphabet Inc. It trades about 0.06 of its total potential returns per unit of risk. Alphabet Inc is currently generating about 0.1 per unit of volatility. If you would invest  177,000  in Alphabet Inc on October 10, 2024 and sell it today you would earn a total of  222,280  from holding Alphabet Inc or generate 125.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Applied Materials  vs.  Alphabet Inc

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.

Alphabet

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Alphabet showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Alphabet

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

The idea behind Applied Materials and Alphabet Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.