Correlation Between KLA Tencor and Small Cap
Can any of the company-specific risk be diversified away by investing in both KLA Tencor and Small Cap 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 Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KLA Tencor and Small Cap Premium, you can compare the effects of market volatilities on KLA Tencor and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of KLA Tencor and Small Cap.
Diversification Opportunities for KLA Tencor and Small Cap
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between KLA and Small is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Premium has no effect on the direction of KLA Tencor i.e., KLA Tencor and Small Cap go up and down completely randomly.
Pair Corralation between KLA Tencor and Small Cap
Given the investment horizon of 90 days KLA Tencor is expected to generate 5.65 times more return on investment than Small Cap. However, KLA Tencor is 5.65 times more volatile than Small Cap Premium. It trades about 0.15 of its potential returns per unit of risk. Small Cap Premium is currently generating about 0.05 per unit of risk. If you would invest 70,271 in KLA Tencor on November 27, 2024 and sell it today you would earn a total of 3,486 from holding KLA Tencor or generate 4.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KLA Tencor vs. Small Cap Premium
Performance |
| Timeline |
| KLA Tencor |
| Small Cap Premium |
KLA Tencor and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KLA Tencor and Small Cap
The main advantage of trading using opposite KLA Tencor and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLA Tencor position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| KLA Tencor vs. Applied Materials | KLA Tencor vs. ASML Holding NV | KLA Tencor vs. Axcelis Technologies | KLA Tencor vs. Teradyne |
| Small Cap vs. RiverNorth Specialty Finance | Small Cap vs. Royce Micro Cap | Small Cap vs. First Trust Enhanced | Small Cap vs. Voya Global Advantage |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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