Correlation Between Lam Research and Photronics

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

By analyzing existing cross correlation between Lam Research Corp and Photronics, you can compare the effects of market volatilities on Lam Research and Photronics 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 Lam Research with a short position of Photronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Research and Photronics.

Diversification Opportunities for Lam Research and Photronics

0.3

Correlation Coefficient

Lam Research  Photronics

Weak diversification

The 3 months correlation between Lam and Photronics is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and Photronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Photronics and Lam Research 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 Lam Research Corp are associated (or correlated) with Photronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Photronics has no effect on the direction of Lam Research i.e., Lam Research and Photronics go up and down completely randomly.

Pair Corralation between Lam Research and Photronics

Given the investment horizon of 90 days Lam Research Corp is expected to under-perform the Photronics. In addition to that, Lam Research is 1.28 times more volatile than Photronics. It trades about -0.01 of its total potential returns per unit of risk. Photronics is currently generating about 0.04 per unit of volatility. If you would invest  2,382  in Photronics on September 2, 2024 and sell it today you would earn a total of  109.00  from holding Photronics or generate 4.58% return on investment over 90 days.

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

Lam Research Corp  vs.  Photronics

Lam Research Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lam Research Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Lam Research is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Photronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Photronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Photronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lam Research and Photronics

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

The idea behind Lam Research Corp and Photronics 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.