Correlation Between CAP LEASE and Applied Materials

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

By analyzing existing cross correlation between CAP LEASE AVIATION and Applied Materials, you can compare the effects of market volatilities on CAP LEASE and Applied Materials 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 CAP LEASE with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAP LEASE and Applied Materials.

Diversification Opportunities for CAP LEASE and Applied Materials

0.77

Correlation Coefficient

CAP LEASE  Applied Materials

Poor diversification

The 3 months correlation between CAP and Applied is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding CAP LEASE AVIATION and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and CAP LEASE 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 CAP LEASE AVIATION are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of CAP LEASE i.e., CAP LEASE and Applied Materials go up and down completely randomly.

Pair Corralation between CAP LEASE and Applied Materials

Assuming the 90 days trading horizon CAP LEASE AVIATION is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, CAP LEASE AVIATION is 1.16 times less risky than Applied Materials. The stock trades about -0.03 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15,428  in Applied Materials on October 5, 2024 and sell it today you would earn a total of  1,087  from holding Applied Materials or generate 7.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.25%
Values	Daily Returns

CAP LEASE AVIATION  vs.  Applied Materials

CAP LEASE AVIATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAP LEASE AVIATION 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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. 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 CAP LEASE and Applied Materials

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

The idea behind CAP LEASE AVIATION and Applied Materials 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.