Correlation Between Aehr Test and Applied Materials

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

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

Diversification Opportunities for Aehr Test and Applied Materials

0.1

Correlation Coefficient

Aehr Test  Applied Materials

Average diversification

The 3 months correlation between Aehr and Applied is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Aehr Test Systems and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Aehr Test 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 Aehr Test Systems 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 Aehr Test i.e., Aehr Test and Applied Materials go up and down completely randomly.

Pair Corralation between Aehr Test and Applied Materials

Given the investment horizon of 90 days Aehr Test is expected to generate 2.75 times less return on investment than Applied Materials. In addition to that, Aehr Test is 2.21 times more volatile than Applied Materials. It trades about 0.01 of its total potential returns per unit of risk. Applied Materials is currently generating about 0.05 per unit of volatility. If you would invest  10,469  in Applied Materials on September 29, 2024 and sell it today you would earn a total of  6,214  from holding Applied Materials or generate 59.36% return on investment over 90 days.

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

Aehr Test Systems  vs.  Applied Materials

Aehr Test Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aehr Test Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Aehr Test reported 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 unsteady 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.

Pair Trading with Aehr Test and Applied Materials

The main advantage of trading using opposite Aehr Test and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aehr Test 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 Aehr Test Systems 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.