Correlation Between Estee Lauder and KLA Tencor

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

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

Diversification Opportunities for Estee Lauder and KLA Tencor

-0.21

Correlation Coefficient

Estee Lauder  KLA Tencor

Very good diversification

The 3 months correlation between Estee and KLA is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with KLA Tencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Tencor has no effect on the direction of Estee Lauder i.e., Estee Lauder and KLA Tencor go up and down completely randomly.

Pair Corralation between Estee Lauder and KLA Tencor

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the KLA Tencor. In addition to that, Estee Lauder is 2.26 times more volatile than KLA Tencor. It trades about -0.18 of its total potential returns per unit of risk. KLA Tencor is currently generating about -0.12 per unit of volatility. If you would invest  73,854  in KLA Tencor on December 4, 2024 and sell it today you would lose (3,954) from holding KLA Tencor or give up 5.35% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  KLA Tencor

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

KLA Tencor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 4 (%) 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 April 2025.

Pair Trading with Estee Lauder and KLA Tencor

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

The idea behind Estee Lauder Companies and KLA Tencor 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.