Correlation Between KLA Tencor and Nova

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

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

Diversification Opportunities for KLA Tencor and Nova

0.85

Correlation Coefficient

KLA Tencor  Nova

Very poor diversification

The 3 months correlation between KLA and Nova is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova 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 Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of KLA Tencor i.e., KLA Tencor and Nova go up and down completely randomly.

Pair Corralation between KLA Tencor and Nova

Given the investment horizon of 90 days KLA Tencor is expected to under-perform the Nova. But the stock apears to be less risky and, when comparing its historical volatility, KLA Tencor is 1.3 times less risky than Nova. The stock trades about -0.07 of its potential returns per unit of risk. The Nova is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  20,671  in Nova on September 13, 2024 and sell it today you would lose (1,716) from holding Nova or give up 8.3% of portfolio value over 90 days.

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

KLA Tencor  vs.  Nova

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Nova

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Nova is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with KLA Tencor and Nova

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

The idea behind KLA Tencor and Nova 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.