Correlation Between Arm Holdings and KLA Tencor

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

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

Diversification Opportunities for Arm Holdings and KLA Tencor

0.23

Correlation Coefficient

Arm Holdings  KLA Tencor

Modest diversification

The 3 months correlation between Arm and KLA is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and KLA Tencor go up and down completely randomly.

Pair Corralation between Arm Holdings and KLA Tencor

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 2.1 times more return on investment than KLA Tencor. However, Arm Holdings is 2.1 times more volatile than KLA Tencor. It trades about 0.07 of its potential returns per unit of risk. KLA Tencor is currently generating about 0.06 per unit of risk. If you would invest  6,359  in Arm Holdings plc on September 20, 2024 and sell it today you would earn a total of  7,921  from holding Arm Holdings plc or generate 124.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	64.31%
Values	Daily Returns

Arm Holdings plc  vs.  KLA Tencor

Arm Holdings plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Arm Holdings and KLA Tencor

The main advantage of trading using opposite Arm Holdings and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings 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 Arm Holdings plc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.