Correlation Between KLA and STMicroelectronics

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

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

Diversification Opportunities for KLA and STMicroelectronics

-0.31

Correlation Coefficient

KLA  STMicroelectronics

Very good diversification

The 3 months correlation between KLA and STMicroelectronics is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding KLA Corp. and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of KLA i.e., KLA and STMicroelectronics go up and down completely randomly.

Pair Corralation between KLA and STMicroelectronics

Assuming the 90 days trading horizon KLA Corporation is expected to generate 0.8 times more return on investment than STMicroelectronics. However, KLA Corporation is 1.25 times less risky than STMicroelectronics. It trades about 0.03 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.01 per unit of risk. If you would invest  99,467  in KLA Corporation on December 27, 2024 and sell it today you would earn a total of  1,933  from holding KLA Corporation or generate 1.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

KLA Corp.  vs.  STMicroelectronics NV

KLA Corporation

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, KLA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KLA and STMicroelectronics

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

The idea behind KLA Corporation and STMicroelectronics NV 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..