Correlation Between Amgen and Applied Materials

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

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

Diversification Opportunities for Amgen and Applied Materials

-0.46

Correlation Coefficient

Amgen  Applied Materials

Very good diversification

The 3 months correlation between Amgen and Applied is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Amgen 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 Amgen Inc are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Amgen i.e., Amgen and Applied Materials go up and down completely randomly.

Pair Corralation between Amgen and Applied Materials

Assuming the 90 days trading horizon Amgen Inc is expected to generate 0.54 times more return on investment than Applied Materials. However, Amgen Inc is 1.85 times less risky than Applied Materials. It trades about 0.17 of its potential returns per unit of risk. Applied Materials is currently generating about -0.07 per unit of risk. If you would invest  25,047  in Amgen Inc on December 21, 2024 and sell it today you would earn a total of  4,068  from holding Amgen Inc or generate 16.24% return on investment over 90 days.

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

Amgen Inc  vs.  Applied Materials

Amgen Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Amgen unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. 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 Amgen and Applied Materials

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

The idea behind Amgen Inc and Applied 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.