Correlation Between Applied Materials and American Airlines

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

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

Diversification Opportunities for Applied Materials and American Airlines

-0.72

Correlation Coefficient

Applied Materials  American Airlines

Pay attention - limited upside

The 3 months correlation between Applied and American is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Applied Materials i.e., Applied Materials and American Airlines go up and down completely randomly.

Pair Corralation between Applied Materials and American Airlines

Assuming the 90 days horizon Applied Materials is expected to generate 0.96 times more return on investment than American Airlines. However, Applied Materials is 1.04 times less risky than American Airlines. It trades about 0.06 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.02 per unit of risk. If you would invest  9,712  in Applied Materials on October 11, 2024 and sell it today you would earn a total of  7,574  from holding Applied Materials or generate 77.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Applied Materials  vs.  American Airlines Group

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.

American Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, American Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and American Airlines

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

The idea behind Applied Materials and American Airlines Group 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 Directory module to find actively traded commodities issued by global exchanges.