Correlation Between MKS Instruments and Applied Materials

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

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

Diversification Opportunities for MKS Instruments and Applied Materials

0.83

Correlation Coefficient

MKS Instruments  Applied Materials

Very poor diversification

The 3 months correlation between MKS and Applied is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MKS Instruments and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and MKS Instruments 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 MKS Instruments 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 MKS Instruments i.e., MKS Instruments and Applied Materials go up and down completely randomly.

Pair Corralation between MKS Instruments and Applied Materials

Given the investment horizon of 90 days MKS Instruments is expected to generate 1.37 times more return on investment than Applied Materials. However, MKS Instruments is 1.37 times more volatile than Applied Materials. It trades about 0.07 of its potential returns per unit of risk. Applied Materials is currently generating about 0.09 per unit of risk. If you would invest  12,003  in MKS Instruments on February 23, 2024 and sell it today you would earn a total of  1,188  from holding MKS Instruments or generate 9.9% return on investment over 90 days.

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

MKS Instruments  vs.  Applied Materials

MKS Instruments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MKS Instruments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, MKS Instruments may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Applied Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Applied Materials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with MKS Instruments and Applied Materials

The main advantage of trading using opposite MKS Instruments and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MKS Instruments 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 MKS Instruments 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.