Correlation Between STMicroelectronics and KLA Tencor

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

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

Diversification Opportunities for STMicroelectronics and KLA Tencor

-0.05

Correlation Coefficient

STMicroelectronics  KLA Tencor

Good diversification

The 3 months correlation between STMicroelectronics and KLA is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and KLA Tencor go up and down completely randomly.

Pair Corralation between STMicroelectronics and KLA Tencor

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the KLA Tencor. In addition to that, STMicroelectronics is 1.36 times more volatile than KLA Tencor. It trades about -0.04 of its total potential returns per unit of risk. KLA Tencor is currently generating about 0.06 per unit of volatility. If you would invest  63,221  in KLA Tencor on December 30, 2024 and sell it today you would earn a total of  4,139  from holding KLA Tencor or generate 6.55% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  KLA Tencor

STMicroelectronics NV ADR

Risk-Adjusted Performance

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 latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

KLA Tencor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KLA Tencor may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with STMicroelectronics and KLA Tencor

The main advantage of trading using opposite STMicroelectronics and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.