Correlation Between Tokyo Electron and Lam Research

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

By analyzing existing cross correlation between Tokyo Electron Ltd and Lam Research Corp, you can compare the effects of market volatilities on Tokyo Electron 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 Tokyo Electron with a short position of Lam Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tokyo Electron and Lam Research.

Diversification Opportunities for Tokyo Electron and Lam Research

0.96

Correlation Coefficient

Tokyo Electron  Lam Research

Almost no diversification

The 3 months correlation between Tokyo and Lam is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron Ltd 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 Tokyo Electron 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 Tokyo Electron Ltd 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 Tokyo Electron i.e., Tokyo Electron and Lam Research go up and down completely randomly.

Pair Corralation between Tokyo Electron and Lam Research

Assuming the 90 days horizon Tokyo Electron Ltd is expected to generate 1.26 times more return on investment than Lam Research. However, Tokyo Electron is 1.26 times more volatile than Lam Research Corp. It trades about 0.12 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  9,674  in Tokyo Electron Ltd on January 20, 2024 and sell it today you would earn a total of  1,973  from holding Tokyo Electron Ltd or generate 20.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Tokyo Electron Ltd  vs.  Lam Research Corp

Tokyo Electron

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Tokyo Electron showed solid returns over the last few months and may actually be approaching a breakup point.

Lam Research Corp

Risk-Adjusted Performance

4 of 100

Insignificant

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 fragile fundamental indicators, Lam Research may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Tokyo Electron and Lam Research

The main advantage of trading using opposite Tokyo Electron and Lam Research positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokyo Electron 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 Tokyo Electron Ltd 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.