Correlation Between Applied Materials and FedEx

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

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

Diversification Opportunities for Applied Materials and FedEx

-0.49

Correlation Coefficient

Applied Materials  FedEx

Very good diversification

The 3 months correlation between Applied and FedEx is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and FedEx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FedEx 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 FedEx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FedEx has no effect on the direction of Applied Materials i.e., Applied Materials and FedEx go up and down completely randomly.

Pair Corralation between Applied Materials and FedEx

Assuming the 90 days horizon Applied Materials is expected to generate 1.23 times more return on investment than FedEx. However, Applied Materials is 1.23 times more volatile than FedEx. It trades about 0.04 of its potential returns per unit of risk. FedEx is currently generating about 0.04 per unit of risk. If you would invest  13,723  in Applied Materials on October 8, 2024 and sell it today you would earn a total of  2,525  from holding Applied Materials or generate 18.4% return on investment over 90 days.

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

Applied Materials  vs.  FedEx

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 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.

FedEx

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FedEx are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FedEx reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and FedEx

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

The idea behind Applied Materials and FedEx 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.