Correlation Between Lam Research and Teradyne

Can any of the company-specific risk be diversified away by investing in both Lam Research and Teradyne 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 Teradyne 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 Teradyne, you can compare the effects of market volatilities on Lam Research and Teradyne 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 Teradyne. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Research and Teradyne.

Diversification Opportunities for Lam Research and Teradyne

0.66

Correlation Coefficient

Lam Research  Teradyne

Poor diversification

The 3 months correlation between Lam and Teradyne is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Lam Research i.e., Lam Research and Teradyne go up and down completely randomly.

Pair Corralation between Lam Research and Teradyne

Given the investment horizon of 90 days Lam Research Corp is expected to generate 1.05 times more return on investment than Teradyne. However, Lam Research is 1.05 times more volatile than Teradyne. It trades about -0.02 of its potential returns per unit of risk. Teradyne is currently generating about -0.07 per unit of risk. If you would invest  7,634  in Lam Research Corp on August 31, 2024 and sell it today you would lose (477.00) from holding Lam Research Corp or give up 6.25% of portfolio value over 90 days.

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

Lam Research Corp  vs.  Teradyne

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.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Lam Research and Teradyne

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

The idea behind Lam Research Corp and Teradyne 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 Stocks Directory module to find actively traded stocks across global markets.