Correlation Between International Consolidated and Applied Materials

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

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

Diversification Opportunities for International Consolidated and Applied Materials

-0.79

Correlation Coefficient

International Consolidated  Applied Materials

Pay attention - limited upside

The 3 months correlation between International and Applied is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and Applied Materials go up and down completely randomly.

Pair Corralation between International Consolidated and Applied Materials

Assuming the 90 days trading horizon International Consolidated Airlines is expected to generate 0.59 times more return on investment than Applied Materials. However, International Consolidated Airlines is 1.71 times less risky than Applied Materials. It trades about 0.28 of its potential returns per unit of risk. Applied Materials is currently generating about -0.07 per unit of risk. If you would invest  16,234  in International Consolidated Airlines on October 13, 2024 and sell it today you would earn a total of  15,356  from holding International Consolidated Airlines or generate 94.59% return on investment over 90 days.

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

International Consolidated Air  vs.  Applied Materials

International Consolidated

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, International Consolidated exhibited 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. 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 International Consolidated and Applied Materials

The main advantage of trading using opposite International Consolidated and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .