Correlation Between Tokyo Electron and Applied Materials

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

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

Diversification Opportunities for Tokyo Electron and Applied Materials

0.53

Correlation Coefficient

Tokyo Electron  Applied Materials

Very weak diversification

The 3 months correlation between Tokyo and Applied is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron Limited and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Tokyo Electron 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 Tokyo Electron Limited are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and Applied Materials go up and down completely randomly.

Pair Corralation between Tokyo Electron and Applied Materials

Assuming the 90 days horizon Tokyo Electron Limited is expected to generate 1.34 times more return on investment than Applied Materials. However, Tokyo Electron is 1.34 times more volatile than Applied Materials. It trades about 0.18 of its potential returns per unit of risk. Applied Materials is currently generating about 0.04 per unit of risk. If you would invest  13,395  in Tokyo Electron Limited on September 18, 2024 and sell it today you would earn a total of  1,525  from holding Tokyo Electron Limited or generate 11.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Tokyo Electron Limited  vs.  Applied Materials

Tokyo Electron

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tokyo Electron and Applied Materials

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

The idea behind Tokyo Electron Limited and Applied Materials 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 Commodity Directory module to find actively traded commodities issued by global exchanges.