Correlation Between Sage Group and Applied Materials

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

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

Diversification Opportunities for Sage Group and Applied Materials

-0.61

Correlation Coefficient

Sage Group  Applied Materials

Excellent diversification

The 3 months correlation between Sage and Applied is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sage Group PLC and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Sage Group 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 Sage Group PLC 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 Sage Group i.e., Sage Group and Applied Materials go up and down completely randomly.

Pair Corralation between Sage Group and Applied Materials

Assuming the 90 days trading horizon Sage Group PLC is expected to generate 0.69 times more return on investment than Applied Materials. However, Sage Group PLC is 1.44 times less risky than Applied Materials. It trades about 0.11 of its potential returns per unit of risk. Applied Materials is currently generating about -0.01 per unit of risk. If you would invest  102,975  in Sage Group PLC on October 22, 2024 and sell it today you would earn a total of  28,625  from holding Sage Group PLC or generate 27.8% return on investment over 90 days.

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

Sage Group PLC  vs.  Applied Materials

Sage Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sage Group and Applied Materials

The main advantage of trading using opposite Sage Group and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sage Group 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 Sage Group PLC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.