Correlation Between Tokyo Electron and Veeco Instruments

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

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

Diversification Opportunities for Tokyo Electron and Veeco Instruments

0.87

Correlation Coefficient

Tokyo Electron  Veeco Instruments

Very poor diversification

The 3 months correlation between Tokyo and Veeco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron and Veeco Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veeco Instruments and Tokyo Electron 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 Tokyo Electron are associated (or correlated) with Veeco Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veeco Instruments has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and Veeco Instruments go up and down completely randomly.

Pair Corralation between Tokyo Electron and Veeco Instruments

Assuming the 90 days horizon Tokyo Electron is expected to generate 1.54 times more return on investment than Veeco Instruments. However, Tokyo Electron is 1.54 times more volatile than Veeco Instruments. It trades about -0.03 of its potential returns per unit of risk. Veeco Instruments is currently generating about -0.11 per unit of risk. If you would invest  16,483  in Tokyo Electron on September 23, 2024 and sell it today you would lose (1,658) from holding Tokyo Electron or give up 10.06% of portfolio value over 90 days.

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

Tokyo Electron  vs.  Veeco Instruments

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Veeco Instruments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veeco Instruments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Tokyo Electron and Veeco Instruments

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

The idea behind Tokyo Electron and Veeco Instruments 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.