Correlation Between NOV and Applied Materials

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

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

Diversification Opportunities for NOV and Applied Materials

-0.59

Correlation Coefficient

NOV  Applied Materials

Excellent diversification

The 3 months correlation between NOV and Applied is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding NOV Inc and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and NOV 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 NOV Inc 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 NOV i.e., NOV and Applied Materials go up and down completely randomly.

Pair Corralation between NOV and Applied Materials

Assuming the 90 days trading horizon NOV Inc is expected to generate 0.02 times more return on investment than Applied Materials. However, NOV Inc is 46.67 times less risky than Applied Materials. It trades about 0.13 of its potential returns per unit of risk. Applied Materials is currently generating about -0.06 per unit of risk. If you would invest  31,948  in NOV Inc on September 25, 2024 and sell it today you would earn a total of  296.00  from holding NOV Inc or generate 0.93% return on investment over 90 days.

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

NOV Inc  vs.  Applied Materials

NOV Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOV Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, NOV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with NOV and Applied Materials

The main advantage of trading using opposite NOV and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NOV 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 NOV Inc 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.

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.