Correlation Between Lam Research and MKS Instruments

Can any of the company-specific risk be diversified away by investing in both Lam Research and MKS Instruments 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 MKS Instruments 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 MKS Instruments, you can compare the effects of market volatilities on Lam Research and MKS Instruments 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 MKS Instruments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Research and MKS Instruments.

Diversification Opportunities for Lam Research and MKS Instruments

0.93

Correlation Coefficient

Lam Research  MKS Instruments

Almost no diversification

The 3 months correlation between Lam and MKS is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and MKS Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MKS Instruments 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 MKS Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MKS Instruments has no effect on the direction of Lam Research i.e., Lam Research and MKS Instruments go up and down completely randomly.

Pair Corralation between Lam Research and MKS Instruments

Given the investment horizon of 90 days Lam Research Corp is expected to under-perform the MKS Instruments. But the stock apears to be less risky and, when comparing its historical volatility, Lam Research Corp is 1.16 times less risky than MKS Instruments. The stock trades about -0.21 of its potential returns per unit of risk. The MKS Instruments is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  13,005  in MKS Instruments on February 2, 2024 and sell it today you would lose (1,360) from holding MKS Instruments or give up 10.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Lam Research Corp  vs.  MKS Instruments

Lam Research Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 2 (%) 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.

MKS Instruments

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Lam Research and MKS Instruments

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

The idea behind Lam Research Corp and MKS Instruments 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 Commodity Directory module to find actively traded commodities issued by global exchanges.