Correlation Between Applied Materials and Martin Marietta

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

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

Diversification Opportunities for Applied Materials and Martin Marietta

0.77

Correlation Coefficient

Applied Materials  Martin Marietta

Poor diversification

The 3 months correlation between Applied and Martin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Martin Marietta Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Martin Marietta Materials 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 Martin Marietta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Martin Marietta Materials has no effect on the direction of Applied Materials i.e., Applied Materials and Martin Marietta go up and down completely randomly.

Pair Corralation between Applied Materials and Martin Marietta

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.22 times more return on investment than Martin Marietta. However, Applied Materials is 1.22 times more volatile than Martin Marietta Materials. It trades about -0.07 of its potential returns per unit of risk. Martin Marietta Materials is currently generating about -0.1 per unit of risk. If you would invest  337,726  in Applied Materials on December 30, 2024 and sell it today you would lose (35,526) from holding Applied Materials or give up 10.52% of portfolio value over 90 days.

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

Applied Materials  vs.  Martin Marietta Materials

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 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.

Martin Marietta Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Martin Marietta Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Applied Materials and Martin Marietta

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

The idea behind Applied Materials and Martin Marietta 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.