Correlation Between Lam Research and Tokyo Electron

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

Diversification Opportunities for Lam Research and Tokyo Electron

0.84

Correlation Coefficient

Lam Research  Tokyo Electron

Very poor diversification

The 3 months correlation between Lam and Tokyo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and Tokyo Electron Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Lam Research i.e., Lam Research and Tokyo Electron go up and down completely randomly.

Pair Corralation between Lam Research and Tokyo Electron

Given the investment horizon of 90 days Lam Research Corp is expected to generate 1.06 times more return on investment than Tokyo Electron. However, Lam Research is 1.06 times more volatile than Tokyo Electron Ltd. It trades about 0.06 of its potential returns per unit of risk. Tokyo Electron Ltd is currently generating about 0.05 per unit of risk. If you would invest  50,341  in Lam Research Corp on February 26, 2024 and sell it today you would earn a total of  46,716  from holding Lam Research Corp or generate 92.8% return on investment over 90 days.

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

Lam Research Corp  vs.  Tokyo Electron Ltd

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electron Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lam Research and Tokyo Electron

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

The idea behind Lam Research Corp and Tokyo Electron Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.