Correlation Between Veeco Instruments and Tokyo Electron

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

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

Diversification Opportunities for Veeco Instruments and Tokyo Electron

0.87

Correlation Coefficient

Veeco Instruments  Tokyo Electron

Very poor diversification

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

Pair Corralation between Veeco Instruments and Tokyo Electron

Given the investment horizon of 90 days Veeco Instruments is expected to under-perform the Tokyo Electron. But the stock apears to be less risky and, when comparing its historical volatility, Veeco Instruments is 1.51 times less risky than Tokyo Electron. The stock trades about -0.03 of its potential returns per unit of risk. The Tokyo Electron is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  14,880  in Tokyo Electron on September 23, 2024 and sell it today you would lose (55.00) from holding Tokyo Electron or give up 0.37% of portfolio value over 90 days.

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

Veeco Instruments  vs.  Tokyo Electron

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.

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.

Pair Trading with Veeco Instruments and Tokyo Electron

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

The idea behind Veeco Instruments and Tokyo Electron 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.