Correlation Between Monolithic Power and Applied Materials

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

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

Diversification Opportunities for Monolithic Power and Applied Materials

0.78

Correlation Coefficient

Monolithic Power  Applied Materials

Poor diversification

The 3 months correlation between Monolithic and Applied is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Monolithic Power 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 Monolithic Power 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 Monolithic Power i.e., Monolithic Power and Applied Materials go up and down completely randomly.

Pair Corralation between Monolithic Power and Applied Materials

Given the investment horizon of 90 days Monolithic Power Systems is expected to under-perform the Applied Materials. In addition to that, Monolithic Power is 1.37 times more volatile than Applied Materials. It trades about -0.14 of its total potential returns per unit of risk. Applied Materials is currently generating about -0.04 per unit of volatility. If you would invest  18,714  in Applied Materials on September 14, 2024 and sell it today you would lose (1,806) from holding Applied Materials or give up 9.65% of portfolio value over 90 days.

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

Monolithic Power Systems  vs.  Applied Materials

Monolithic Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monolithic Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Monolithic Power and Applied Materials

The main advantage of trading using opposite Monolithic Power and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monolithic Power 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 Monolithic Power 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.