Correlation Between Applied Materials and Advantest

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

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

Diversification Opportunities for Applied Materials and Advantest

0.54

Correlation Coefficient

Applied Materials  Advantest

Very weak diversification

The 3 months correlation between Applied and Advantest is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Advantest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantest 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 Advantest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantest has no effect on the direction of Applied Materials i.e., Applied Materials and Advantest go up and down completely randomly.

Pair Corralation between Applied Materials and Advantest

Given the investment horizon of 90 days Applied Materials is expected to generate 0.77 times more return on investment than Advantest. However, Applied Materials is 1.3 times less risky than Advantest. It trades about 0.0 of its potential returns per unit of risk. Advantest is currently generating about -0.04 per unit of risk. If you would invest  17,366  in Applied Materials on February 19, 2025 and sell it today you would lose (793.00) from holding Applied Materials or give up 4.57% of portfolio value over 90 days.

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

Applied Materials  vs.  Advantest

Applied Materials

Risk-Adjusted Performance

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 comparatively stable basic indicators, Applied Materials is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Advantest

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advantest has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Applied Materials and Advantest

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

The idea behind Applied Materials and Advantest 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.