Correlation Between APPLIED MATERIALS and SIMS METAL

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

By analyzing existing cross correlation between APPLIED MATERIALS and SIMS METAL MGT, you can compare the effects of market volatilities on APPLIED MATERIALS and SIMS METAL 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 SIMS METAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of APPLIED MATERIALS and SIMS METAL.

Diversification Opportunities for APPLIED MATERIALS and SIMS METAL

0.73

Correlation Coefficient

APPLIED MATERIALS  SIMS METAL

Poor diversification

The 3 months correlation between APPLIED and SIMS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT 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 SIMS METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS METAL MGT has no effect on the direction of APPLIED MATERIALS i.e., APPLIED MATERIALS and SIMS METAL go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and SIMS METAL

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 1.44 times more return on investment than SIMS METAL. However, APPLIED MATERIALS is 1.44 times more volatile than SIMS METAL MGT. It trades about 0.1 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about -0.01 per unit of risk. If you would invest  13,617  in APPLIED MATERIALS on May 4, 2025 and sell it today you would earn a total of  1,941  from holding APPLIED MATERIALS or generate 14.25% 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.  SIMS METAL MGT

APPLIED MATERIALS

Risk-Adjusted Performance

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 unsteady basic indicators, APPLIED MATERIALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

SIMS METAL MGT

Risk-Adjusted Performance

Very Weak

Over the last 90 days SIMS METAL MGT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with APPLIED MATERIALS and SIMS METAL

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

The idea behind APPLIED MATERIALS and SIMS METAL MGT 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.