Correlation Between Applied Materials and CITY OFFICE

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

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

Diversification Opportunities for Applied Materials and CITY OFFICE

-0.18

Correlation Coefficient

Applied Materials  CITY OFFICE

Good diversification

The 3 months correlation between Applied and CITY is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and CITY OFFICE REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITY OFFICE REIT 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 CITY OFFICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITY OFFICE REIT has no effect on the direction of Applied Materials i.e., Applied Materials and CITY OFFICE go up and down completely randomly.

Pair Corralation between Applied Materials and CITY OFFICE

Assuming the 90 days horizon Applied Materials is expected to generate 1119.2 times less return on investment than CITY OFFICE. But when comparing it to its historical volatility, Applied Materials is 1.31 times less risky than CITY OFFICE. It trades about 0.0 of its potential returns per unit of risk. CITY OFFICE REIT is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  448.00  in CITY OFFICE REIT on September 22, 2024 and sell it today you would earn a total of  52.00  from holding CITY OFFICE REIT or generate 11.61% 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.  CITY OFFICE REIT

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.

CITY OFFICE REIT

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CITY OFFICE REIT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CITY OFFICE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Applied Materials and CITY OFFICE

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

The idea behind Applied Materials and CITY OFFICE REIT 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.