Correlation Between Enphase Energy and Applied Materials

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

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

Diversification Opportunities for Enphase Energy and Applied Materials

0.35

Correlation Coefficient

Enphase Energy  Applied Materials

Weak diversification

The 3 months correlation between Enphase and Applied is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Enphase Energy and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Enphase Energy 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 Enphase Energy 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 Enphase Energy i.e., Enphase Energy and Applied Materials go up and down completely randomly.

Pair Corralation between Enphase Energy and Applied Materials

Assuming the 90 days horizon Enphase Energy is expected to generate 1.39 times more return on investment than Applied Materials. However, Enphase Energy is 1.39 times more volatile than Applied Materials. It trades about 0.2 of its potential returns per unit of risk. Applied Materials is currently generating about -0.13 per unit of risk. If you would invest  5,959  in Enphase Energy on September 12, 2024 and sell it today you would earn a total of  1,141  from holding Enphase Energy or generate 19.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Enphase Energy  vs.  Applied Materials

Enphase Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enphase Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. 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.

Pair Trading with Enphase Energy and Applied Materials

The main advantage of trading using opposite Enphase Energy and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enphase Energy 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 Enphase Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.