Correlation Between Applied Materials and Snam SpA

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

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

Diversification Opportunities for Applied Materials and Snam SpA

-0.37

Correlation Coefficient

Applied Materials  Snam SpA

Very good diversification

The 3 months correlation between Applied and Snam is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Snam SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snam SpA 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 Snam SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snam SpA has no effect on the direction of Applied Materials i.e., Applied Materials and Snam SpA go up and down completely randomly.

Pair Corralation between Applied Materials and Snam SpA

Assuming the 90 days horizon Applied Materials is expected to under-perform the Snam SpA. In addition to that, Applied Materials is 2.33 times more volatile than Snam SpA. It trades about -0.05 of its total potential returns per unit of risk. Snam SpA is currently generating about 0.17 per unit of volatility. If you would invest  409.00  in Snam SpA on December 19, 2024 and sell it today you would earn a total of  53.00  from holding Snam SpA or generate 12.96% return on investment over 90 days.

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

Applied Materials  vs.  Snam SpA

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 fragile 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.

Snam SpA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Snam SpA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Snam SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Snam SpA

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

The idea behind Applied Materials and Snam SpA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..