Correlation Between KLA Tencor and Lam Research

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

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

Diversification Opportunities for KLA Tencor and Lam Research

0.88

Correlation Coefficient

KLA Tencor  Lam Research

Very poor diversification

The 3 months correlation between KLA and Lam is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Lam Research Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research Corp 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research Corp has no effect on the direction of KLA Tencor i.e., KLA Tencor and Lam Research go up and down completely randomly.

Pair Corralation between KLA Tencor and Lam Research

Given the investment horizon of 90 days KLA Tencor is expected to under-perform the Lam Research. But the stock apears to be less risky and, when comparing its historical volatility, KLA Tencor is 1.21 times less risky than Lam Research. The stock trades about -0.22 of its potential returns per unit of risk. The Lam Research Corp is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  7,831  in Lam Research Corp on August 30, 2024 and sell it today you would lose (674.00) from holding Lam Research Corp or give up 8.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

KLA Tencor  vs.  Lam Research Corp

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 weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Lam Research Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lam Research Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with KLA Tencor and Lam Research

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

The idea behind KLA Tencor and Lam Research Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.