Correlation Between Applied Materials and Old Republic

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

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

Diversification Opportunities for Applied Materials and Old Republic

0.48

Correlation Coefficient

Applied Materials  Old Republic

Very weak diversification

The 3 months correlation between Applied and Old is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Applied Materials i.e., Applied Materials and Old Republic go up and down completely randomly.

Pair Corralation between Applied Materials and Old Republic

Given the investment horizon of 90 days Applied Materials is expected to generate 2.0 times more return on investment than Old Republic. However, Applied Materials is 2.0 times more volatile than Old Republic International. It trades about 0.11 of its potential returns per unit of risk. Old Republic International is currently generating about 0.16 per unit of risk. If you would invest  19,718  in Applied Materials on February 28, 2024 and sell it today you would earn a total of  2,468  from holding Applied Materials or generate 12.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Applied Materials  vs.  Old Republic International

Applied Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 8 (%) 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.

Old Republic Interna

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Old Republic may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Applied Materials and Old Republic

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

The idea behind Applied Materials and Old Republic International 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.