Correlation Between Applied Materials and Universal Display

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

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

Diversification Opportunities for Applied Materials and Universal Display

0.61

Correlation Coefficient

Applied Materials  Universal Display

Poor diversification

The 3 months correlation between Applied and Universal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Universal Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display 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 Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display has no effect on the direction of Applied Materials i.e., Applied Materials and Universal Display go up and down completely randomly.

Pair Corralation between Applied Materials and Universal Display

Assuming the 90 days horizon Applied Materials is expected to generate 1.05 times more return on investment than Universal Display. However, Applied Materials is 1.05 times more volatile than Universal Display. It trades about 0.02 of its potential returns per unit of risk. Universal Display is currently generating about -0.03 per unit of risk. If you would invest  16,708  in Applied Materials on September 3, 2024 and sell it today you would earn a total of  170.00  from holding Applied Materials or generate 1.02% 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.  Universal Display

Applied Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Universal Display

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Applied Materials and Universal Display

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

The idea behind Applied Materials and Universal Display 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.