Correlation Between Applied Materials and CyberArk Software

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

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

Diversification Opportunities for Applied Materials and CyberArk Software

0.52

Correlation Coefficient

Applied Materials  CyberArk Software

Very weak diversification

The 3 months correlation between Applied and CyberArk is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and CyberArk Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CyberArk Software 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 CyberArk Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CyberArk Software has no effect on the direction of Applied Materials i.e., Applied Materials and CyberArk Software go up and down completely randomly.

Pair Corralation between Applied Materials and CyberArk Software

Assuming the 90 days horizon Applied Materials is expected to under-perform the CyberArk Software. In addition to that, Applied Materials is 1.02 times more volatile than CyberArk Software. It trades about -0.06 of its total potential returns per unit of risk. CyberArk Software is currently generating about 0.04 per unit of volatility. If you would invest  30,580  in CyberArk Software on December 22, 2024 and sell it today you would earn a total of  1,440  from holding CyberArk Software or generate 4.71% return on investment over 90 days.

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

Applied Materials  vs.  CyberArk Software

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 uncertain 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.

CyberArk Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CyberArk Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CyberArk Software may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Applied Materials and CyberArk Software

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

The idea behind Applied Materials and CyberArk Software 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.