Correlation Between KLA and Applied Materials

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

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

Diversification Opportunities for KLA and Applied Materials

0.92

Correlation Coefficient

KLA  Applied Materials

Almost no diversification

The 3 months correlation between KLA and Applied is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding KLA Corp. and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and KLA 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 KLA Corporation are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of KLA i.e., KLA and Applied Materials go up and down completely randomly.

Pair Corralation between KLA and Applied Materials

Assuming the 90 days horizon KLA Corporation is expected to generate 1.12 times more return on investment than Applied Materials. However, KLA is 1.12 times more volatile than Applied Materials. It trades about 0.19 of its potential returns per unit of risk. Applied Materials is currently generating about 0.17 per unit of risk. If you would invest  52,915  in KLA Corporation on April 4, 2025 and sell it today you would earn a total of  23,125  from holding KLA Corporation or generate 43.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

KLA Corp.  vs.  Applied Materials

KLA Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Corporation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, KLA reported solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Applied Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KLA and Applied Materials

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

The idea behind KLA Corporation and Applied Materials 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.