Correlation Between KLA and GP Investments

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

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

Diversification Opportunities for KLA and GP Investments

0.08

Correlation Coefficient

KLA  GP Investments

Significant diversification

The 3 months correlation between KLA and GPIV33 is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding KLA Corp. and GP Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GP Investments and KLA 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 KLA Corporation are associated (or correlated) with GP Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GP Investments has no effect on the direction of KLA i.e., KLA and GP Investments go up and down completely randomly.

Pair Corralation between KLA and GP Investments

Assuming the 90 days trading horizon KLA Corporation is expected to generate 0.64 times more return on investment than GP Investments. However, KLA Corporation is 1.57 times less risky than GP Investments. It trades about 0.15 of its potential returns per unit of risk. GP Investments is currently generating about 0.04 per unit of risk. If you would invest  96,278  in KLA Corporation on October 25, 2024 and sell it today you would earn a total of  19,051  from holding KLA Corporation or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

KLA Corp.  vs.  GP Investments

KLA Corporation

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Corporation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, KLA sustained solid returns over the last few months and may actually be approaching a breakup point.

GP Investments

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GP Investments are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, GP Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with KLA and GP Investments

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

The idea behind KLA Corporation and GP Investments 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.