Correlation Between KLA Tencor and Lam Research

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

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

Diversification Opportunities for KLA Tencor and Lam Research

0.96

Correlation Coefficient

KLA Tencor  Lam Research

Almost no diversification

The 3 months correlation between KLA and Lam is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Lam Research Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research Corp 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research Corp has no effect on the direction of KLA Tencor i.e., KLA Tencor and Lam Research go up and down completely randomly.

Pair Corralation between KLA Tencor and Lam Research

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.9 times more return on investment than Lam Research. However, KLA Tencor is 1.11 times less risky than Lam Research. It trades about 0.07 of its potential returns per unit of risk. Lam Research Corp is currently generating about 0.06 per unit of risk. If you would invest  32,328  in KLA Tencor on January 26, 2024 and sell it today you would earn a total of  33,326  from holding KLA Tencor or generate 103.09% return on investment over 90 days.

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

KLA Tencor  vs.  Lam Research Corp

KLA Tencor

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KLA Tencor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Lam Research Corp

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Lam Research may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with KLA Tencor and Lam Research

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

The idea behind KLA Tencor and Lam Research Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.