Correlation Between Applied Materials and Air Transport

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

By analyzing existing cross correlation between Applied Materials and Air Transport Services, you can compare the effects of market volatilities on Applied Materials and Air Transport 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 Air Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Air Transport.

Diversification Opportunities for Applied Materials and Air Transport

-0.78

Correlation Coefficient

Applied Materials  Air Transport

Pay attention - limited upside

The 3 months correlation between Applied and Air is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services 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 Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of Applied Materials i.e., Applied Materials and Air Transport go up and down completely randomly.

Pair Corralation between Applied Materials and Air Transport

Given the investment horizon of 90 days Applied Materials is expected to generate 1.1 times more return on investment than Air Transport. However, Applied Materials is 1.1 times more volatile than Air Transport Services. It trades about -0.02 of its potential returns per unit of risk. Air Transport Services is currently generating about -0.16 per unit of risk. If you would invest  20,623  in Applied Materials on January 28, 2024 and sell it today you would lose (285.00) from holding Applied Materials or give up 1.38% of portfolio value over 90 days.

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

Applied Materials  vs.  Air Transport Services

Applied Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Applied Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Air Transport Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Transport Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Applied Materials and Air Transport

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

The idea behind Applied Materials and Air Transport Services 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.