Correlation Between Japan Asia and Applied Materials

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

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

Diversification Opportunities for Japan Asia and Applied Materials

0.01

Correlation Coefficient

Japan Asia  Applied Materials

Significant diversification

The 3 months correlation between Japan and Applied is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Japan Asia Investment and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Japan Asia 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 Japan Asia Investment 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 Japan Asia i.e., Japan Asia and Applied Materials go up and down completely randomly.

Pair Corralation between Japan Asia and Applied Materials

Assuming the 90 days horizon Japan Asia Investment is expected to under-perform the Applied Materials. In addition to that, Japan Asia is 1.27 times more volatile than Applied Materials. It trades about 0.0 of its total potential returns per unit of risk. Applied Materials is currently generating about 0.06 per unit of volatility. If you would invest  9,712  in Applied Materials on October 11, 2024 and sell it today you would earn a total of  7,426  from holding Applied Materials or generate 76.46% return on investment over 90 days.

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

Japan Asia Investment  vs.  Applied Materials

Japan Asia Investment

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Japan Asia Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the 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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Japan Asia and Applied Materials

The main advantage of trading using opposite Japan Asia and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Asia 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 Japan Asia Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.