Correlation Between Plastic Omnium and Applied Materials

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

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

Diversification Opportunities for Plastic Omnium and Applied Materials

-0.41

Correlation Coefficient

Plastic Omnium  Applied Materials

Very good diversification

The 3 months correlation between Plastic and Applied is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Plastic Omnium and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Plastic Omnium 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 Plastic Omnium 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 Plastic Omnium i.e., Plastic Omnium and Applied Materials go up and down completely randomly.

Pair Corralation between Plastic Omnium and Applied Materials

Assuming the 90 days trading horizon Plastic Omnium is expected to generate 0.78 times more return on investment than Applied Materials. However, Plastic Omnium is 1.28 times less risky than Applied Materials. It trades about 0.33 of its potential returns per unit of risk. Applied Materials is currently generating about 0.03 per unit of risk. If you would invest  944.00  in Plastic Omnium on October 9, 2024 and sell it today you would earn a total of  115.00  from holding Plastic Omnium or generate 12.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Plastic Omnium  vs.  Applied Materials

Plastic Omnium

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Plastic Omnium unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's basic indicators 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 Plastic Omnium and Applied Materials

The main advantage of trading using opposite Plastic Omnium and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plastic Omnium 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 Plastic Omnium 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.