Correlation Between Shinhan Financial and ASML Holding

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

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

Diversification Opportunities for Shinhan Financial and ASML Holding

0.73

Correlation Coefficient

Shinhan Financial  ASML Holding

Poor diversification

The 3 months correlation between Shinhan and ASML is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group 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 Shinhan Financial 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 Shinhan Financial Group 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 Shinhan Financial i.e., Shinhan Financial and ASML Holding go up and down completely randomly.

Pair Corralation between Shinhan Financial and ASML Holding

Considering the 90-day investment horizon Shinhan Financial is expected to generate 1.68 times less return on investment than ASML Holding. But when comparing it to its historical volatility, Shinhan Financial Group is 1.2 times less risky than ASML Holding. It trades about 0.06 of its potential returns per unit of risk. ASML Holding NV is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  60,423  in ASML Holding NV on January 21, 2024 and sell it today you would earn a total of  25,531  from holding ASML Holding NV or generate 42.25% return on investment over 90 days.

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

Shinhan Financial Group  vs.  ASML Holding NV

Shinhan Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shinhan Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Shinhan Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ASML Holding NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain primary indicators, ASML Holding disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinhan Financial and ASML Holding

The main advantage of trading using opposite Shinhan Financial and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shinhan Financial 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 Shinhan Financial Group 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.