Correlation Between GMxico Transportes and Applied Materials

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

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

Diversification Opportunities for GMxico Transportes and Applied Materials

0.28

Correlation Coefficient

GMxico Transportes  Applied Materials

Modest diversification

The 3 months correlation between GMxico and Applied is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding GMxico Transportes SAB and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and GMxico Transportes 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 GMxico Transportes SAB 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 GMxico Transportes i.e., GMxico Transportes and Applied Materials go up and down completely randomly.

Pair Corralation between GMxico Transportes and Applied Materials

Assuming the 90 days trading horizon GMxico Transportes SAB is expected to generate 0.75 times more return on investment than Applied Materials. However, GMxico Transportes SAB is 1.34 times less risky than Applied Materials. It trades about 0.01 of its potential returns per unit of risk. Applied Materials is currently generating about -0.03 per unit of risk. If you would invest  3,212  in GMxico Transportes SAB on September 12, 2024 and sell it today you would earn a total of  1.00  from holding GMxico Transportes SAB or generate 0.03% return on investment over 90 days.

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

GMxico Transportes SAB  vs.  Applied Materials

GMxico Transportes SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMxico Transportes SAB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, GMxico Transportes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GMxico Transportes and Applied Materials

The main advantage of trading using opposite GMxico Transportes and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMxico Transportes 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 GMxico Transportes SAB 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.