Correlation Between Daqo New and KLA Tencor

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

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

Diversification Opportunities for Daqo New and KLA Tencor

0.08

Correlation Coefficient

Daqo New  KLA Tencor

Significant diversification

The 3 months correlation between Daqo and KLA is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Daqo New 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 Daqo New Energy 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 Daqo New i.e., Daqo New and KLA Tencor go up and down completely randomly.

Pair Corralation between Daqo New and KLA Tencor

Allowing for the 90-day total investment horizon Daqo New Energy is expected to under-perform the KLA Tencor. In addition to that, Daqo New is 2.55 times more volatile than KLA Tencor. It trades about -0.1 of its total potential returns per unit of risk. KLA Tencor is currently generating about -0.06 per unit of volatility. If you would invest  64,467  in KLA Tencor on September 24, 2024 and sell it today you would lose (1,530) from holding KLA Tencor or give up 2.37% of portfolio value over 90 days.

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

Daqo New Energy  vs.  KLA Tencor

Daqo New Energy

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady 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 Daqo New and KLA Tencor

The main advantage of trading using opposite Daqo New and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daqo New 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 Daqo New Energy 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.