Correlation Between Applied Materials and SES SA

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

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

Diversification Opportunities for Applied Materials and SES SA

0.74

Correlation Coefficient

Applied Materials  SES SA

Poor diversification

The 3 months correlation between Applied and SES is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and SES SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SES SA 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 SES SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SES SA has no effect on the direction of Applied Materials i.e., Applied Materials and SES SA go up and down completely randomly.

Pair Corralation between Applied Materials and SES SA

Assuming the 90 days horizon Applied Materials is expected to generate 1.14 times more return on investment than SES SA. However, Applied Materials is 1.14 times more volatile than SES SA. It trades about 0.03 of its potential returns per unit of risk. SES SA is currently generating about -0.07 per unit of risk. If you would invest  16,150  in Applied Materials on October 9, 2024 and sell it today you would earn a total of  98.00  from holding Applied Materials or generate 0.61% return on investment over 90 days.

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

Applied Materials  vs.  SES SA

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SES SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SES SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Applied Materials and SES SA

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

The idea behind Applied Materials and SES SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.