Correlation Between LB Foster and KLA Tencor

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

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

Diversification Opportunities for LB Foster and KLA Tencor

-0.65

Correlation Coefficient

LB Foster  KLA Tencor

Excellent diversification

The 3 months correlation between FSTR and KLA is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and LB Foster 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 LB Foster 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 LB Foster i.e., LB Foster and KLA Tencor go up and down completely randomly.

Pair Corralation between LB Foster and KLA Tencor

Given the investment horizon of 90 days LB Foster is expected to under-perform the KLA Tencor. In addition to that, LB Foster is 1.1 times more volatile than KLA Tencor. It trades about -0.13 of its total potential returns per unit of risk. KLA Tencor is currently generating about -0.04 per unit of volatility. If you would invest  63,955  in KLA Tencor on September 23, 2024 and sell it today you would lose (1,018) from holding KLA Tencor or give up 1.59% of portfolio value over 90 days.

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

LB Foster  vs.  KLA Tencor

LB Foster

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with LB Foster and KLA Tencor

The main advantage of trading using opposite LB Foster and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LB Foster 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 LB Foster 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.