Correlation Between Daqo New and ASML Holding

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Can any of the company-specific risk be diversified away by investing in both Daqo New and ASML Holding 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 Daqo New and ASML Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Daqo New Energy and ASML Holding NV, you can compare the effects of market volatilities on Daqo New and ASML Holding 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 Daqo New with a short position of ASML Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and ASML Holding.

Diversification Opportunities for Daqo New and ASML Holding

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Daqo and ASML is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and ASML Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASML Holding NV and Daqo New 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 Daqo New Energy are associated (or correlated) with ASML Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASML Holding NV has no effect on the direction of Daqo New i.e., Daqo New and ASML Holding go up and down completely randomly.

Pair Corralation between Daqo New and ASML Holding

Allowing for the 90-day total investment horizon Daqo New Energy is expected to under-perform the ASML Holding. In addition to that, Daqo New is 1.76 times more volatile than ASML Holding NV. It trades about -0.18 of its total potential returns per unit of risk. ASML Holding NV is currently generating about 0.05 per unit of volatility. If you would invest  94,134  in ASML Holding NV on January 17, 2024 and sell it today you would earn a total of  1,348  from holding ASML Holding NV or generate 1.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Daqo New Energy  vs.  ASML Holding NV

 Performance 
       Timeline  
Daqo New Energy 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
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.
ASML Holding NV 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating primary indicators, ASML Holding disclosed solid returns over the last few months and may actually be approaching a breakup point.

Daqo New and ASML Holding Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Daqo New and ASML Holding

The main advantage of trading using opposite Daqo New and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daqo New position performs unexpectedly, ASML Holding 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 ASML Holding will offset losses from the drop in ASML Holding's long position.
The idea behind Daqo New Energy and ASML Holding NV 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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