Correlation Between KLA Tencor and Applied Materials

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

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

Diversification Opportunities for KLA Tencor and Applied Materials

0.52

Correlation Coefficient

KLA Tencor  Applied Materials

Very weak diversification

The 3 months correlation between KLA and Applied is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and KLA Tencor 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 Tencor are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of KLA Tencor i.e., KLA Tencor and Applied Materials go up and down completely randomly.

Pair Corralation between KLA Tencor and Applied Materials

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.89 times more return on investment than Applied Materials. However, KLA Tencor is 1.13 times less risky than Applied Materials. It trades about 0.09 of its potential returns per unit of risk. Applied Materials is currently generating about -0.05 per unit of risk. If you would invest  63,221  in KLA Tencor on December 28, 2024 and sell it today you would earn a total of  6,779  from holding KLA Tencor or generate 10.72% return on investment over 90 days.

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

KLA Tencor  vs.  Applied Materials

KLA Tencor

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 6 (%) 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.

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with KLA Tencor and Applied Materials

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

The idea behind KLA Tencor and Applied Materials 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.