Correlation Between Applied Materials and Power Metal

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

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

Diversification Opportunities for Applied Materials and Power Metal

0.22

Correlation Coefficient

Applied Materials  Power Metal

Modest diversification

The 3 months correlation between Applied and Power is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Power Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Metal Resources and Applied Materials 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 Applied Materials are associated (or correlated) with Power Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Metal Resources has no effect on the direction of Applied Materials i.e., Applied Materials and Power Metal go up and down completely randomly.

Pair Corralation between Applied Materials and Power Metal

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Power Metal. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.35 times less risky than Power Metal. The stock trades about -0.12 of its potential returns per unit of risk. The Power Metal Resources is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Power Metal Resources on September 26, 2024 and sell it today you would lose (75.00) from holding Power Metal Resources or give up 5.17% of portfolio value over 90 days.

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

Applied Materials  vs.  Power Metal Resources

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Power Metal Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Metal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power Metal is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Applied Materials and Power Metal

The main advantage of trading using opposite Applied Materials and Power Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Power Metal 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 Power Metal will offset losses from the drop in Power Metal's long position.

The idea behind Applied Materials and Power Metal Resources 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.