Correlation Between Applied Materials and Sumco Corp

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

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

Diversification Opportunities for Applied Materials and Sumco Corp

0.61

Correlation Coefficient

Applied Materials  Sumco Corp

Poor diversification

The 3 months correlation between Applied and Sumco is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Sumco Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumco Corp ADR 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 Sumco Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumco Corp ADR has no effect on the direction of Applied Materials i.e., Applied Materials and Sumco Corp go up and down completely randomly.

Pair Corralation between Applied Materials and Sumco Corp

Given the investment horizon of 90 days Applied Materials is expected to generate 0.81 times more return on investment than Sumco Corp. However, Applied Materials is 1.24 times less risky than Sumco Corp. It trades about 0.09 of its potential returns per unit of risk. Sumco Corp ADR is currently generating about 0.02 per unit of risk. If you would invest  19,716  in Applied Materials on February 23, 2024 and sell it today you would earn a total of  2,099  from holding Applied Materials or generate 10.65% return on investment over 90 days.

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

Applied Materials  vs.  Sumco Corp ADR

Applied Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Sumco Corp ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumco Corp ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sumco Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials and Sumco Corp

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

The idea behind Applied Materials and Sumco Corp ADR 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 Transaction History module to view history of all your transactions and understand their impact on performance.