Correlation Between Lam Research and KLA Tencor

Can any of the company-specific risk be diversified away by investing in both Lam Research and KLA Tencor 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 Lam Research and KLA Tencor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lam Research Corp and KLA Tencor, you can compare the effects of market volatilities on Lam Research and KLA Tencor 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 Lam Research with a short position of KLA Tencor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Research and KLA Tencor.

Diversification Opportunities for Lam Research and KLA Tencor

0.5

Correlation Coefficient

Lam Research  KLA Tencor

Very weak diversification

The 3 months correlation between Lam and KLA is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Lam Research 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 Lam Research Corp are associated (or correlated) with KLA Tencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Tencor has no effect on the direction of Lam Research i.e., Lam Research and KLA Tencor go up and down completely randomly.

Pair Corralation between Lam Research and KLA Tencor

Given the investment horizon of 90 days Lam Research is expected to generate 5.4 times less return on investment than KLA Tencor. But when comparing it to its historical volatility, Lam Research Corp is 1.05 times less risky than KLA Tencor. It trades about 0.02 of its potential returns per unit of risk. KLA Tencor is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  65,045  in KLA Tencor on February 19, 2024 and sell it today you would earn a total of  9,723  from holding KLA Tencor or generate 14.95% return on investment over 90 days.

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

Lam Research Corp  vs.  KLA Tencor

Lam Research Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Lam Research is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

KLA Tencor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KLA Tencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lam Research and KLA Tencor

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

The idea behind Lam Research Corp and KLA Tencor 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.