Correlation Between Tower Semiconductor and KLA Tencor

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

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

Diversification Opportunities for Tower Semiconductor and KLA Tencor

-0.5

Correlation Coefficient

Tower Semiconductor  KLA Tencor

Very good diversification

The 3 months correlation between Tower and KLA is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tower Semiconductor and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and Tower Semiconductor 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 Tower Semiconductor 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 Tower Semiconductor i.e., Tower Semiconductor and KLA Tencor go up and down completely randomly.

Pair Corralation between Tower Semiconductor and KLA Tencor

Given the investment horizon of 90 days Tower Semiconductor is expected to generate 1.01 times more return on investment than KLA Tencor. However, Tower Semiconductor is 1.01 times more volatile than KLA Tencor. It trades about 0.14 of its potential returns per unit of risk. KLA Tencor is currently generating about -0.1 per unit of risk. If you would invest  4,231  in Tower Semiconductor on September 20, 2024 and sell it today you would earn a total of  1,014  from holding Tower Semiconductor or generate 23.97% return on investment over 90 days.

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

Tower Semiconductor  vs.  KLA Tencor

Tower Semiconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Tower Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tower Semiconductor and KLA Tencor

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

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.