Correlation Between APPLIED MATERIALS and Vulcan Materials

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

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

Diversification Opportunities for APPLIED MATERIALS and Vulcan Materials

-0.22

Correlation Coefficient

APPLIED MATERIALS  Vulcan Materials

Very good diversification

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

Pair Corralation between APPLIED MATERIALS and Vulcan Materials

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 10.04 times less return on investment than Vulcan Materials. In addition to that, APPLIED MATERIALS is 1.35 times more volatile than Vulcan Materials. It trades about 0.02 of its total potential returns per unit of risk. Vulcan Materials is currently generating about 0.22 per unit of volatility. If you would invest  20,961  in Vulcan Materials on September 4, 2024 and sell it today you would earn a total of  6,239  from holding Vulcan Materials or generate 29.76% return on investment over 90 days.

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

APPLIED MATERIALS  vs.  Vulcan Materials

APPLIED MATERIALS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in APPLIED MATERIALS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, APPLIED MATERIALS is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vulcan Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with APPLIED MATERIALS and Vulcan Materials

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

The idea behind APPLIED MATERIALS and Vulcan 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.