Correlation Between APPLIED MATERIALS and China Reinsurance

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

By analyzing existing cross correlation between APPLIED MATERIALS and China Reinsurance Corp, you can compare the effects of market volatilities on APPLIED MATERIALS and China Reinsurance 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 China Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of APPLIED MATERIALS and China Reinsurance.

Diversification Opportunities for APPLIED MATERIALS and China Reinsurance

0.02

Correlation Coefficient

APPLIED MATERIALS  China Reinsurance

Significant diversification

The 3 months correlation between APPLIED and China is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and China Reinsurance Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reinsurance Corp 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 China Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reinsurance Corp has no effect on the direction of APPLIED MATERIALS i.e., APPLIED MATERIALS and China Reinsurance go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and China Reinsurance

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 0.65 times more return on investment than China Reinsurance. However, APPLIED MATERIALS is 1.54 times less risky than China Reinsurance. It trades about 0.08 of its potential returns per unit of risk. China Reinsurance Corp is currently generating about -0.15 per unit of risk. If you would invest  17,289  in APPLIED MATERIALS on October 25, 2024 and sell it today you would earn a total of  1,829  from holding APPLIED MATERIALS or generate 10.58% return on investment over 90 days.

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

APPLIED MATERIALS  vs.  China Reinsurance Corp

APPLIED MATERIALS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in APPLIED MATERIALS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, APPLIED MATERIALS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Reinsurance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reinsurance Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with APPLIED MATERIALS and China Reinsurance

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

The idea behind APPLIED MATERIALS and China Reinsurance Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.