Correlation Between KLA Tencor and Direct Line

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

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

Diversification Opportunities for KLA Tencor and Direct Line

-0.08

Correlation Coefficient

KLA Tencor  Direct Line

Good diversification

The 3 months correlation between KLA and Direct is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of KLA Tencor i.e., KLA Tencor and Direct Line go up and down completely randomly.

Pair Corralation between KLA Tencor and Direct Line

Given the investment horizon of 90 days KLA Tencor is expected to generate 22.47 times less return on investment than Direct Line. But when comparing it to its historical volatility, KLA Tencor is 3.44 times less risky than Direct Line. It trades about 0.04 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  941.00  in Direct Line Insurance on September 28, 2024 and sell it today you would earn a total of  324.00  from holding Direct Line Insurance or generate 34.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

KLA Tencor  vs.  Direct Line Insurance

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.

Direct Line Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KLA Tencor and Direct Line

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

The idea behind KLA Tencor and Direct Line Insurance 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.