Correlation Between Applied Materials and Spectra7 Microsystems

Can any of the company-specific risk be diversified away by investing in both Applied Materials and Spectra7 Microsystems 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 Spectra7 Microsystems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and Spectra7 Microsystems, you can compare the effects of market volatilities on Applied Materials and Spectra7 Microsystems 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 Spectra7 Microsystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Spectra7 Microsystems.

Diversification Opportunities for Applied Materials and Spectra7 Microsystems

-0.09

Correlation Coefficient

Applied Materials  Spectra7 Microsystems

Good diversification

The 3 months correlation between Applied and Spectra7 is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Spectra7 Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra7 Microsystems 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 Spectra7 Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra7 Microsystems has no effect on the direction of Applied Materials i.e., Applied Materials and Spectra7 Microsystems go up and down completely randomly.

Pair Corralation between Applied Materials and Spectra7 Microsystems

Given the investment horizon of 90 days Applied Materials is expected to generate 0.19 times more return on investment than Spectra7 Microsystems. However, Applied Materials is 5.24 times less risky than Spectra7 Microsystems. It trades about 0.37 of its potential returns per unit of risk. Spectra7 Microsystems is currently generating about -0.12 per unit of risk. If you would invest  16,746  in Applied Materials on October 23, 2024 and sell it today you would earn a total of  2,558  from holding Applied Materials or generate 15.28% 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.  Spectra7 Microsystems

Applied Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Spectra7 Microsystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectra7 Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Applied Materials and Spectra7 Microsystems

The main advantage of trading using opposite Applied Materials and Spectra7 Microsystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Spectra7 Microsystems 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 Spectra7 Microsystems will offset losses from the drop in Spectra7 Microsystems' long position.

The idea behind Applied Materials and Spectra7 Microsystems 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.