Correlation Between MagnaChip Semiconductor and KLA Tencor

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

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

Diversification Opportunities for MagnaChip Semiconductor and KLA Tencor

0.7

Correlation Coefficient

MagnaChip Semiconductor  KLA Tencor

Poor diversification

The 3 months correlation between MagnaChip and KLA is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and MagnaChip Semiconductor 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 MagnaChip Semiconductor are associated (or correlated) with KLA Tencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Tencor has no effect on the direction of MagnaChip Semiconductor i.e., MagnaChip Semiconductor and KLA Tencor go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and KLA Tencor

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the KLA Tencor. But the stock apears to be less risky and, when comparing its historical volatility, MagnaChip Semiconductor is 1.17 times less risky than KLA Tencor. The stock trades about -0.06 of its potential returns per unit of risk. The KLA Tencor is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  78,253  in KLA Tencor on September 24, 2024 and sell it today you would lose (15,316) from holding KLA Tencor or give up 19.57% of portfolio value over 90 days.

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

MagnaChip Semiconductor  vs.  KLA Tencor

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with MagnaChip Semiconductor and KLA Tencor

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

The idea behind MagnaChip Semiconductor and KLA Tencor 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.