Correlation Between Applied Materials and Oracle

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

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

Diversification Opportunities for Applied Materials and Oracle

-0.31

Correlation Coefficient

Applied Materials  Oracle

Very good diversification

The 3 months correlation between Applied and Oracle is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Oracle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle 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 Oracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle has no effect on the direction of Applied Materials i.e., Applied Materials and Oracle go up and down completely randomly.

Pair Corralation between Applied Materials and Oracle

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Oracle. In addition to that, Applied Materials is 1.3 times more volatile than Oracle. It trades about -0.02 of its total potential returns per unit of risk. Oracle is currently generating about 0.08 per unit of volatility. If you would invest  319,668  in Oracle on September 17, 2024 and sell it today you would earn a total of  29,332  from holding Oracle or generate 9.18% return on investment over 90 days.

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

Applied Materials  vs.  Oracle

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 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.

Oracle

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Oracle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Applied Materials and Oracle

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

The idea behind Applied Materials and Oracle 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.