Correlation Between STMicroelectronics and KLA

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

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

Diversification Opportunities for STMicroelectronics and KLA

-0.31

Correlation Coefficient

STMicroelectronics  KLA

Very good diversification

The 3 months correlation between STMicroelectronics and KLA is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and KLA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Corporation 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 are associated (or correlated) with KLA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Corporation has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and KLA go up and down completely randomly.

Pair Corralation between STMicroelectronics and KLA

Assuming the 90 days trading horizon STMicroelectronics is expected to generate 2.26 times less return on investment than KLA. In addition to that, STMicroelectronics is 1.25 times more volatile than KLA Corporation. It trades about 0.01 of its total potential returns per unit of risk. KLA Corporation is currently generating about 0.03 per unit of volatility. If you would invest  99,467  in KLA Corporation on December 27, 2024 and sell it today you would earn a total of  1,933  from holding KLA Corporation or generate 1.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

STMicroelectronics NV  vs.  KLA Corp.

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KLA Corporation

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, KLA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with STMicroelectronics and KLA

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

The idea behind STMicroelectronics NV and KLA Corporation 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.