Correlation Between Nike and KLA Tencor

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

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

Diversification Opportunities for Nike and KLA Tencor

0.7

Correlation Coefficient

Nike  KLA Tencor

Poor diversification

The 3 months correlation between Nike and KLA is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Nike 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 Nike Inc 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 Nike i.e., Nike and KLA Tencor go up and down completely randomly.

Pair Corralation between Nike and KLA Tencor

Considering the 90-day investment horizon Nike Inc is expected to under-perform the KLA Tencor. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.3 times less risky than KLA Tencor. The stock trades about -0.03 of its potential returns per unit of risk. The KLA Tencor is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  74,604  in KLA Tencor on September 13, 2024 and sell it today you would lose (9,944) from holding KLA Tencor or give up 13.33% of portfolio value over 90 days.

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

Nike Inc  vs.  KLA Tencor

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Nike and KLA Tencor

The main advantage of trading using opposite Nike and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.