Correlation Between APPLIED MATERIALS and HEINEKEN

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

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

Diversification Opportunities for APPLIED MATERIALS and HEINEKEN

-0.06

Correlation Coefficient

APPLIED MATERIALS  HEINEKEN

Good diversification

The 3 months correlation between APPLIED and HEINEKEN is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and HEINEKEN SP ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEINEKEN SP ADR 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 HEINEKEN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEINEKEN SP ADR has no effect on the direction of APPLIED MATERIALS i.e., APPLIED MATERIALS and HEINEKEN go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and HEINEKEN

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 2.21 times more return on investment than HEINEKEN. However, APPLIED MATERIALS is 2.21 times more volatile than HEINEKEN SP ADR. It trades about 0.08 of its potential returns per unit of risk. HEINEKEN SP ADR is currently generating about -0.29 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

APPLIED MATERIALS  vs.  HEINEKEN SP ADR

APPLIED MATERIALS

Risk-Adjusted Performance

6 of 100

OK

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.

HEINEKEN SP ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEINEKEN SP ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward-looking signals 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 HEINEKEN

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

The idea behind APPLIED MATERIALS and HEINEKEN SP ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.