Correlation Between Applied Materials and TERADATA

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

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

Diversification Opportunities for Applied Materials and TERADATA

0.01

Correlation Coefficient

Applied Materials  TERADATA

Significant diversification

The 3 months correlation between Applied and TERADATA is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and TERADATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TERADATA 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 TERADATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TERADATA has no effect on the direction of Applied Materials i.e., Applied Materials and TERADATA go up and down completely randomly.

Pair Corralation between Applied Materials and TERADATA

Assuming the 90 days horizon Applied Materials is expected to under-perform the TERADATA. In addition to that, Applied Materials is 2.0 times more volatile than TERADATA. It trades about -0.03 of its total potential returns per unit of risk. TERADATA is currently generating about 0.19 per unit of volatility. If you would invest  2,540  in TERADATA on August 31, 2024 and sell it today you would earn a total of  420.00  from holding TERADATA or generate 16.54% return on investment over 90 days.

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

Applied Materials  vs.  TERADATA

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

TERADATA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TERADATA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TERADATA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and TERADATA

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

The idea behind Applied Materials and TERADATA 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.