Correlation Between KLA and Tokyo Electron

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

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

Diversification Opportunities for KLA and Tokyo Electron

0.69

Correlation Coefficient

KLA  Tokyo Electron

Poor diversification

The 3 months correlation between KLA and Tokyo is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding KLA Corp. and Tokyo Electron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of KLA i.e., KLA and Tokyo Electron go up and down completely randomly.

Pair Corralation between KLA and Tokyo Electron

Assuming the 90 days horizon KLA Corporation is expected to generate 0.91 times more return on investment than Tokyo Electron. However, KLA Corporation is 1.1 times less risky than Tokyo Electron. It trades about 0.06 of its potential returns per unit of risk. Tokyo Electron Limited is currently generating about -0.02 per unit of risk. If you would invest  61,800  in KLA Corporation on December 27, 2024 and sell it today you would earn a total of  4,850  from holding KLA Corporation or generate 7.85% return on investment over 90 days.

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

KLA Corp.  vs.  Tokyo Electron Limited

KLA Corporation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Corporation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, KLA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tokyo Electron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tokyo Electron Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tokyo Electron is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KLA and Tokyo Electron

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

The idea behind KLA Corporation and Tokyo Electron Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.