Correlation Between KLA Tencor and Nordic Semiconductor

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

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

Diversification Opportunities for KLA Tencor and Nordic Semiconductor

-0.29

Correlation Coefficient

KLA Tencor  Nordic Semiconductor

Very good diversification

The 3 months correlation between KLA and Nordic is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of KLA Tencor i.e., KLA Tencor and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between KLA Tencor and Nordic Semiconductor

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.57 times more return on investment than Nordic Semiconductor. However, KLA Tencor is 1.74 times less risky than Nordic Semiconductor. It trades about 0.06 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about -0.01 per unit of risk. If you would invest  39,378  in KLA Tencor on October 10, 2024 and sell it today you would earn a total of  29,552  from holding KLA Tencor or generate 75.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

KLA Tencor  vs.  Nordic Semiconductor ASA

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Nordic Semiconductor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordic Semiconductor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Nordic Semiconductor 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 Tencor and Nordic Semiconductor

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

The idea behind KLA Tencor and Nordic Semiconductor ASA 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.