Correlation Between APPLIED MATERIALS and Lowes Companies

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

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

Diversification Opportunities for APPLIED MATERIALS and Lowes Companies

0.04

Correlation Coefficient

APPLIED MATERIALS  Lowes Companies

Significant diversification

The 3 months correlation between APPLIED and Lowes is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of APPLIED MATERIALS i.e., APPLIED MATERIALS and Lowes Companies go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and Lowes Companies

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 12.68 times less return on investment than Lowes Companies. In addition to that, APPLIED MATERIALS is 1.64 times more volatile than Lowes Companies. It trades about 0.01 of its total potential returns per unit of risk. Lowes Companies is currently generating about 0.16 per unit of volatility. If you would invest  22,292  in Lowes Companies on September 12, 2024 and sell it today you would earn a total of  3,798  from holding Lowes Companies or generate 17.04% 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.  Lowes Companies

APPLIED MATERIALS

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days APPLIED MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, APPLIED MATERIALS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lowes Companies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lowes Companies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with APPLIED MATERIALS and Lowes Companies

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

The idea behind APPLIED MATERIALS and Lowes Companies 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.