Correlation Between Applied Materials and Western Copper

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

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

Diversification Opportunities for Applied Materials and Western Copper

0.4

Correlation Coefficient

Applied Materials  Western Copper

Very weak diversification

The 3 months correlation between Applied and Western is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Western Copper and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Copper 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 Western Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Copper has no effect on the direction of Applied Materials i.e., Applied Materials and Western Copper go up and down completely randomly.

Pair Corralation between Applied Materials and Western Copper

Assuming the 90 days horizon Applied Materials is expected to generate 0.8 times more return on investment than Western Copper. However, Applied Materials is 1.25 times less risky than Western Copper. It trades about -0.03 of its potential returns per unit of risk. Western Copper and is currently generating about -0.05 per unit of risk. If you would invest  17,113  in Applied Materials on September 23, 2024 and sell it today you would lose (1,307) from holding Applied Materials or give up 7.64% of portfolio value over 90 days.

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

Applied Materials  vs.  Western Copper and

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. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Western Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Copper and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Western Copper

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

The idea behind Applied Materials and Western Copper and 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.