Correlation Between KLA Tencor and ASML Holding

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

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

Diversification Opportunities for KLA Tencor and ASML Holding

0.86

Correlation Coefficient

KLA Tencor ASML Holding

Very poor diversification

The 3 months correlation between KLA and ASML is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding KLA-Tencor and ASML Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASML Holding NV and KLA Tencor 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 KLA Tencor are associated (or correlated) with ASML Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASML Holding NV has no effect on the direction of KLA Tencor i.e., KLA Tencor and ASML Holding go up and down completely randomly.

Pair Corralation between KLA Tencor and ASML Holding

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.97 times more return on investment than ASML Holding. However, KLA Tencor is 1.03 times less risky than ASML Holding. It trades about 0.02 of its potential returns per unit of risk. ASML Holding NV is currently generating about 0.01 per unit of risk. If you would invest  40,880  in KLA Tencor on March 3, 2023 and sell it today you would earn a total of  4,422  from holding KLA Tencor or generate 10.82% return on investment over 90 days.

KLA-Tencor  vs.  ASML Holding NV

KLA-Tencor

KLA Performance

8 of 100

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 weak basic indicators, KLA Tencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

ASML Holding NV

ASML Performance

8 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak primary indicators, ASML Holding disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KLA Tencor and ASML Holding

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

The idea behind KLA Tencor and ASML Holding NV 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.