Correlation Between APPLIED MATERIALS and Diageo Plc

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

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

Diversification Opportunities for APPLIED MATERIALS and Diageo Plc

-0.62

Correlation Coefficient

APPLIED MATERIALS  Diageo Plc

Excellent diversification

The 3 months correlation between APPLIED and Diageo is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of APPLIED MATERIALS i.e., APPLIED MATERIALS and Diageo Plc go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and Diageo Plc

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to generate 1.61 times more return on investment than Diageo Plc. However, APPLIED MATERIALS is 1.61 times more volatile than Diageo plc. It trades about 0.22 of its potential returns per unit of risk. Diageo plc is currently generating about -0.1 per unit of risk. If you would invest  12,026  in APPLIED MATERIALS on April 20, 2025 and sell it today you would earn a total of  4,344  from holding APPLIED MATERIALS or generate 36.12% return on investment over 90 days.

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

APPLIED MATERIALS  vs.  Diageo plc

APPLIED MATERIALS

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in APPLIED MATERIALS are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, APPLIED MATERIALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Diageo plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with APPLIED MATERIALS and Diageo Plc

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

The idea behind APPLIED MATERIALS and Diageo plc 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.