Correlation Between KLA Tencor and EMCORE

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

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

Diversification Opportunities for KLA Tencor and EMCORE

-0.65

Correlation Coefficient

KLA Tencor  EMCORE

Excellent diversification

The 3 months correlation between KLA and EMCORE is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE 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 EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of KLA Tencor i.e., KLA Tencor and EMCORE go up and down completely randomly.

Pair Corralation between KLA Tencor and EMCORE

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.57 times more return on investment than EMCORE. However, KLA Tencor is 1.75 times less risky than EMCORE. It trades about -0.04 of its potential returns per unit of risk. EMCORE is currently generating about -0.24 per unit of risk. If you would invest  71,088  in KLA Tencor on February 1, 2024 and sell it today you would lose (2,159) from holding KLA Tencor or give up 3.04% of portfolio value over 90 days.

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

KLA Tencor  vs.  EMCORE

KLA Tencor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, KLA Tencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

EMCORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with KLA Tencor and EMCORE

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

The idea behind KLA Tencor and EMCORE 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.