Correlation Between Applied Materials and Danaher

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

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

Diversification Opportunities for Applied Materials and Danaher

0.68

Correlation Coefficient

Applied Materials  Danaher

Poor diversification

The 3 months correlation between Applied and Danaher is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Danaher in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danaher 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 Danaher. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danaher has no effect on the direction of Applied Materials i.e., Applied Materials and Danaher go up and down completely randomly.

Pair Corralation between Applied Materials and Danaher

Assuming the 90 days horizon Applied Materials is expected to generate 1.64 times more return on investment than Danaher. However, Applied Materials is 1.64 times more volatile than Danaher. It trades about -0.06 of its potential returns per unit of risk. Danaher is currently generating about -0.14 per unit of risk. If you would invest  15,915  in Applied Materials on December 31, 2024 and sell it today you would lose (1,993) from holding Applied Materials or give up 12.52% of portfolio value over 90 days.

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

Applied Materials  vs.  Danaher

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.

Danaher

Risk-Adjusted Performance

Very Weak

Over the last 90 days Danaher has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Applied Materials and Danaher

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

The idea behind Applied Materials and Danaher 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.