Correlation Between Applied Materials and United Airlines

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

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

Diversification Opportunities for Applied Materials and United Airlines

0.88

Correlation Coefficient

Applied Materials  United Airlines

Very poor diversification

The 3 months correlation between Applied and United is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Applied Materials i.e., Applied Materials and United Airlines go up and down completely randomly.

Pair Corralation between Applied Materials and United Airlines

Assuming the 90 days trading horizon Applied Materials is expected to generate 0.73 times more return on investment than United Airlines. However, Applied Materials is 1.37 times less risky than United Airlines. It trades about -0.07 of its potential returns per unit of risk. United Airlines Holdings is currently generating about -0.16 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	Strong
Accuracy	98.41%
Values	Daily Returns

Applied Materials  vs.  United Airlines Holdings

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.

United Airlines Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Airlines Holdings 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 essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Applied Materials and United Airlines

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

The idea behind Applied Materials and United Airlines Holdings 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.