Correlation Between Applied Materials and Silver Mines

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

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

Diversification Opportunities for Applied Materials and Silver Mines

0.12

Correlation Coefficient

Applied Materials  Silver Mines

Average diversification

The 3 months correlation between Applied and Silver is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Silver Mines Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Mines Limited 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 Silver Mines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Mines Limited has no effect on the direction of Applied Materials i.e., Applied Materials and Silver Mines go up and down completely randomly.

Pair Corralation between Applied Materials and Silver Mines

Assuming the 90 days horizon Applied Materials is expected to generate 2.11 times less return on investment than Silver Mines. But when comparing it to its historical volatility, Applied Materials is 3.64 times less risky than Silver Mines. It trades about 0.04 of its potential returns per unit of risk. Silver Mines Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8.50  in Silver Mines Limited on October 9, 2024 and sell it today you would lose (4.13) from holding Silver Mines Limited or give up 48.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Applied Materials  vs.  Silver Mines Limited

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.

Silver Mines Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silver Mines Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Silver Mines is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Applied Materials and Silver Mines

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

The idea behind Applied Materials and Silver Mines Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.