Correlation Between ASML Holding and Daqo New

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

By analyzing existing cross correlation between ASML Holding NV and Daqo New Energy, you can compare the effects of market volatilities on ASML Holding and Daqo New 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 ASML Holding with a short position of Daqo New. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASML Holding and Daqo New.

Diversification Opportunities for ASML Holding and Daqo New

0.59

Correlation Coefficient

ASML Holding  Daqo New

Very weak diversification

The 3 months correlation between ASML and Daqo is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and Daqo New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daqo New Energy and ASML Holding 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 ASML Holding NV are associated (or correlated) with Daqo New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daqo New Energy has no effect on the direction of ASML Holding i.e., ASML Holding and Daqo New go up and down completely randomly.

Pair Corralation between ASML Holding and Daqo New

Given the investment horizon of 90 days ASML Holding NV is expected to generate 0.83 times more return on investment than Daqo New. However, ASML Holding NV is 1.21 times less risky than Daqo New. It trades about -0.14 of its potential returns per unit of risk. Daqo New Energy is currently generating about -0.21 per unit of risk. If you would invest  97,893  in ASML Holding NV on January 25, 2024 and sell it today you would lose (7,736) from holding ASML Holding NV or give up 7.9% of portfolio value over 90 days.

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

ASML Holding NV  vs.  Daqo New Energy

ASML Holding NV

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, ASML Holding is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Daqo New Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASML Holding and Daqo New

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

The idea behind ASML Holding NV and Daqo New Energy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.