Correlation Between Applied Materials and KLA Tencor

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

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

Diversification Opportunities for Applied Materials and KLA Tencor

0.96

Correlation Coefficient

Applied Materials  KLA Tencor

Almost no diversification

The 3 months correlation between Applied and KLA is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor 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 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 Applied Materials i.e., Applied Materials and KLA Tencor go up and down completely randomly.

Pair Corralation between Applied Materials and KLA Tencor

Given the investment horizon of 90 days Applied Materials is expected to generate 0.86 times more return on investment than KLA Tencor. However, Applied Materials is 1.16 times less risky than KLA Tencor. It trades about -0.15 of its potential returns per unit of risk. KLA Tencor is currently generating about -0.14 per unit of risk. If you would invest  20,846  in Applied Materials on January 25, 2024 and sell it today you would lose (1,240) from holding Applied Materials or give up 5.95% of portfolio value over 90 days.

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

Applied Materials  vs.  KLA Tencor

Applied Materials

Risk-Adjusted Performance

7 of 100

Modest

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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

KLA Tencor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, KLA Tencor is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Applied Materials and KLA Tencor

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

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.