Correlation Between KLA Tencor and Stepan

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

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

Diversification Opportunities for KLA Tencor and Stepan

-0.2

Correlation Coefficient

KLA Tencor  Stepan

Good diversification

The 3 months correlation between KLA and Stepan is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of KLA Tencor i.e., KLA Tencor and Stepan go up and down completely randomly.

Pair Corralation between KLA Tencor and Stepan

Given the investment horizon of 90 days KLA Tencor is expected to generate 1.6 times more return on investment than Stepan. However, KLA Tencor is 1.6 times more volatile than Stepan Company. It trades about 0.0 of its potential returns per unit of risk. Stepan Company is currently generating about -0.13 per unit of risk. If you would invest  80,395  in KLA Tencor on October 21, 2024 and sell it today you would lose (4,648) from holding KLA Tencor or give up 5.78% of portfolio value over 90 days.

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

KLA Tencor  vs.  Stepan Company

KLA Tencor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KLA Tencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with KLA Tencor and Stepan

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

The idea behind KLA Tencor and Stepan Company 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.