Correlation Between London Security and Applied Materials
Can any of the company-specific risk be diversified away by investing in both London Security 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 London Security and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Security Plc and Applied Materials, you can compare the effects of market volatilities on London Security 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 London Security with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and Applied Materials.
Diversification Opportunities for London Security and Applied Materials
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between London and Applied is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and London Security 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 London Security 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 London Security i.e., London Security and Applied Materials go up and down completely randomly.
Pair Corralation between London Security and Applied Materials
Assuming the 90 days trading horizon London Security Plc is expected to generate 0.53 times more return on investment than Applied Materials. However, London Security Plc is 1.87 times less risky than Applied Materials. It trades about -0.09 of its potential returns per unit of risk. Applied Materials is currently generating about -0.12 per unit of risk. If you would invest 371,671 in London Security Plc on September 26, 2024 and sell it today you would lose (31,671) from holding London Security Plc or give up 8.52% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
London Security Plc vs. Applied Materials
Performance |
Timeline |
London Security Plc |
Applied Materials |
London Security and Applied Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with London Security and Applied Materials
The main advantage of trading using opposite London Security and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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.London Security vs. Tungsten West PLC | London Security vs. Argo Group Limited | London Security vs. Hardide PLC | London Security vs. Gfinity PLC |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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