Correlation Between Lam Research and Nova

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

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

Diversification Opportunities for Lam Research and Nova

0.85

Correlation Coefficient

Lam Research  Nova

Very poor diversification

The 3 months correlation between Lam and Nova is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Lam Research 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 Lam Research Corp are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Lam Research i.e., Lam Research and Nova go up and down completely randomly.

Pair Corralation between Lam Research and Nova

Given the investment horizon of 90 days Lam Research Corp is expected to generate 0.77 times more return on investment than Nova. However, Lam Research Corp is 1.29 times less risky than Nova. It trades about 0.03 of its potential returns per unit of risk. Nova is currently generating about 0.01 per unit of risk. If you would invest  7,377  in Lam Research Corp on December 26, 2024 and sell it today you would earn a total of  237.00  from holding Lam Research Corp or generate 3.21% return on investment over 90 days.

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

Lam Research Corp  vs.  Nova

Lam Research Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Lam Research is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Nova

Risk-Adjusted Performance

Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Nova is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lam Research and Nova

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

The idea behind Lam Research Corp and Nova 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..