Correlation Between KLA Tencor and STMicroelectronics

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

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

Diversification Opportunities for KLA Tencor and STMicroelectronics

0.8

Correlation Coefficient

KLA Tencor  STMicroelectronics

Very poor diversification

The 3 months correlation between KLA and STMicroelectronics is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics NV ADR has no effect on the direction of KLA Tencor i.e., KLA Tencor and STMicroelectronics go up and down completely randomly.

Pair Corralation between KLA Tencor and STMicroelectronics

Given the investment horizon of 90 days KLA Tencor is expected to under-perform the STMicroelectronics. In addition to that, KLA Tencor is 1.31 times more volatile than STMicroelectronics NV ADR. It trades about -0.06 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.03 per unit of volatility. If you would invest  2,773  in STMicroelectronics NV ADR on September 14, 2024 and sell it today you would lose (150.00) from holding STMicroelectronics NV ADR or give up 5.41% of portfolio value over 90 days.

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

KLA Tencor  vs.  STMicroelectronics NV ADR

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.

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with KLA Tencor and STMicroelectronics

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

The idea behind KLA Tencor and STMicroelectronics NV ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.