Correlation Between Applied Materials and Tokyo Electron

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

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

Diversification Opportunities for Applied Materials and Tokyo Electron

0.77

Correlation Coefficient

Applied Materials  Tokyo Electron

Poor diversification

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

Pair Corralation between Applied Materials and Tokyo Electron

Given the investment horizon of 90 days Applied Materials is expected to under-perform the Tokyo Electron. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.43 times less risky than Tokyo Electron. The stock trades about 0.0 of its potential returns per unit of risk. The Tokyo Electron Ltd is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7,109  in Tokyo Electron Ltd on September 17, 2024 and sell it today you would earn a total of  641.00  from holding Tokyo Electron Ltd or generate 9.02% return on investment over 90 days.

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

Applied Materials  vs.  Tokyo Electron Ltd

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 uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electron Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials and Tokyo Electron

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

The idea behind Applied Materials and Tokyo Electron Ltd 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.