Correlation Between United States and Applied Materials

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

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

Diversification Opportunities for United States and Applied Materials

0.11

Correlation Coefficient

United States  Applied Materials

Average diversification

The 3 months correlation between United and Applied is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and United States 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 United States Steel 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 United States i.e., United States and Applied Materials go up and down completely randomly.

Pair Corralation between United States and Applied Materials

Given the investment horizon of 90 days United States Steel is expected to generate 1.19 times more return on investment than Applied Materials. However, United States is 1.19 times more volatile than Applied Materials. It trades about -0.02 of its potential returns per unit of risk. Applied Materials is currently generating about -0.08 per unit of risk. If you would invest  68,464  in United States Steel on September 29, 2024 and sell it today you would lose (4,964) from holding United States Steel or give up 7.25% of portfolio value over 90 days.

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

United States Steel  vs.  Applied Materials

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, United States 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 United States and Applied Materials

The main advantage of trading using opposite United States and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..