Correlation Between Applied Materials and Compagnie Plastic

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

By analyzing existing cross correlation between Applied Materials and Compagnie Plastic Omnium, you can compare the effects of market volatilities on Applied Materials and Compagnie Plastic 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 Compagnie Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Compagnie Plastic.

Diversification Opportunities for Applied Materials and Compagnie Plastic

0.03

Correlation Coefficient

Applied Materials  Compagnie Plastic

Significant diversification

The 3 months correlation between Applied and Compagnie is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Compagnie Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Plastic Omnium 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 Compagnie Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Plastic Omnium has no effect on the direction of Applied Materials i.e., Applied Materials and Compagnie Plastic go up and down completely randomly.

Pair Corralation between Applied Materials and Compagnie Plastic

Assuming the 90 days horizon Applied Materials is expected to under-perform the Compagnie Plastic. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.14 times less risky than Compagnie Plastic. The stock trades about -0.02 of its potential returns per unit of risk. The Compagnie Plastic Omnium is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  812.00  in Compagnie Plastic Omnium on September 13, 2024 and sell it today you would earn a total of  147.00  from holding Compagnie Plastic Omnium or generate 18.1% return on investment over 90 days.

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

Applied Materials  vs.  Compagnie Plastic Omnium

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 nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Compagnie Plastic Omnium

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Plastic Omnium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Compagnie Plastic reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Compagnie Plastic

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

The idea behind Applied Materials and Compagnie Plastic Omnium 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.