Correlation Between KLA Tencor and MagnaChip Semiconductor
Can any of the company-specific risk be diversified away by investing in both KLA Tencor and MagnaChip Semiconductor 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 MagnaChip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KLA Tencor and MagnaChip Semiconductor, you can compare the effects of market volatilities on KLA Tencor and MagnaChip Semiconductor 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 MagnaChip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of KLA Tencor and MagnaChip Semiconductor.
Diversification Opportunities for KLA Tencor and MagnaChip Semiconductor
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between KLA and MagnaChip is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor 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 MagnaChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MagnaChip Semiconductor has no effect on the direction of KLA Tencor i.e., KLA Tencor and MagnaChip Semiconductor go up and down completely randomly.
Pair Corralation between KLA Tencor and MagnaChip Semiconductor
Given the investment horizon of 90 days KLA Tencor is expected to generate 0.52 times more return on investment than MagnaChip Semiconductor. However, KLA Tencor is 1.94 times less risky than MagnaChip Semiconductor. It trades about -0.09 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.2 per unit of risk. If you would invest 67,248 in KLA Tencor on August 27, 2024 and sell it today you would lose (2,781) from holding KLA Tencor or give up 4.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KLA Tencor vs. MagnaChip Semiconductor
Performance |
| Timeline |
| KLA Tencor |
| MagnaChip Semiconductor |
KLA Tencor and MagnaChip Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KLA Tencor and MagnaChip Semiconductor
The main advantage of trading using opposite KLA Tencor and MagnaChip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLA Tencor position performs unexpectedly, MagnaChip Semiconductor 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 MagnaChip Semiconductor will offset losses from the drop in MagnaChip Semiconductor's long position.The idea behind KLA Tencor and MagnaChip Semiconductor 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.| MagnaChip Semiconductor vs. CEVA Inc | MagnaChip Semiconductor vs. MACOM Technology Solutions | MagnaChip Semiconductor vs. FormFactor | MagnaChip Semiconductor vs. MaxLinear |
Check out your portfolio center.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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