Correlation Between Applied Materials and Citic Telecom

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

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

Diversification Opportunities for Applied Materials and Citic Telecom

0.55

Correlation Coefficient

Applied Materials  Citic Telecom

Very weak diversification

The 3 months correlation between Applied and Citic is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Citic Telecom International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Telecom Intern 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 Citic Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Telecom Intern has no effect on the direction of Applied Materials i.e., Applied Materials and Citic Telecom go up and down completely randomly.

Pair Corralation between Applied Materials and Citic Telecom

Assuming the 90 days horizon Applied Materials is expected to generate 0.95 times more return on investment than Citic Telecom. However, Applied Materials is 1.06 times less risky than Citic Telecom. It trades about 0.2 of its potential returns per unit of risk. Citic Telecom International is currently generating about 0.08 per unit of risk. If you would invest  12,232  in Applied Materials on February 4, 2025 and sell it today you would earn a total of  1,560  from holding Applied Materials or generate 12.75% return on investment over 90 days.

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

Applied Materials  vs.  Citic Telecom International

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Citic Telecom Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citic Telecom International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Citic Telecom is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Applied Materials and Citic Telecom

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

The idea behind Applied Materials and Citic Telecom International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.