Correlation Between Amazon and APPLIED MATERIALS
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and APPLIED MATERIALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and APPLIED MATERIALS, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of APPLIED MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and APPLIED MATERIALS.
Diversification Opportunities for Amazon and APPLIED MATERIALS
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Amazon and APPLIED is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and APPLIED MATERIALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APPLIED MATERIALS and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and APPLIED MATERIALS go up and down completely randomly.
Pair Corralation between Amazon and APPLIED MATERIALS
Assuming the 90 days trading horizon Amazon is expected to generate 1.18 times less return on investment than APPLIED MATERIALS. But when comparing it to its historical volatility, Amazon Inc is 1.19 times less risky than APPLIED MATERIALS. It trades about 0.15 of its potential returns per unit of risk. APPLIED MATERIALS is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 13,099 in APPLIED MATERIALS on April 24, 2025 and sell it today you would earn a total of 2,823 from holding APPLIED MATERIALS or generate 21.55% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Amazon Inc vs. APPLIED MATERIALS
Performance |
Timeline |
Amazon Inc |
APPLIED MATERIALS |
Amazon and APPLIED MATERIALS Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Amazon and APPLIED MATERIALS
The main advantage of trading using opposite Amazon and APPLIED MATERIALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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's long position.The idea behind Amazon Inc 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.APPLIED MATERIALS vs. MOUNT GIBSON IRON | APPLIED MATERIALS vs. CHAMPION IRON | APPLIED MATERIALS vs. COMBA TELECOM SYST | APPLIED MATERIALS vs. Singapore Telecommunications Limited |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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