Correlation Between Japan Steel and Applied Materials

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

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

Diversification Opportunities for Japan Steel and Applied Materials

0.71

Correlation Coefficient

Japan Steel  Applied Materials

Poor diversification

The 3 months correlation between Japan and Applied is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Japan Steel 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 The Japan Steel 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 Japan Steel i.e., Japan Steel and Applied Materials go up and down completely randomly.

Pair Corralation between Japan Steel and Applied Materials

Assuming the 90 days horizon Japan Steel is expected to generate 1.12 times less return on investment than Applied Materials. In addition to that, Japan Steel is 1.1 times more volatile than Applied Materials. It trades about 0.18 of its total potential returns per unit of risk. Applied Materials is currently generating about 0.22 per unit of volatility. If you would invest  11,827  in Applied Materials on April 21, 2025 and sell it today you would earn a total of  4,731  from holding Applied Materials or generate 40.0% return on investment over 90 days.

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

The Japan Steel  vs.  Applied Materials

Japan Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly fragile basic indicators, Applied Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Steel and Applied Materials

The main advantage of trading using opposite Japan Steel and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Steel 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 The Japan Steel 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.