Correlation Between STMicroelectronics and ASML Holding
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics 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 STMicroelectronics and ASML Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV ADR and ASML Holding NV, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of ASML Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and ASML Holding.
Diversification Opportunities for STMicroelectronics and ASML Holding
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between STMicroelectronics and ASML is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR 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 STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and ASML Holding go up and down completely randomly.
Pair Corralation between STMicroelectronics and ASML Holding
Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the ASML Holding. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.19 times less risky than ASML Holding. The stock trades about -0.12 of its potential returns per unit of risk. The ASML Holding NV is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 84,605 in ASML Holding NV on January 24, 2024 and sell it today you would earn a total of 2,600 from holding ASML Holding NV or generate 3.07% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
STMicroelectronics NV ADR vs. ASML Holding NV
Performance |
Timeline |
STMicroelectronics NV ADR |
ASML Holding NV |
STMicroelectronics and ASML Holding Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with STMicroelectronics and ASML Holding
The main advantage of trading using opposite STMicroelectronics and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV ADR 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.Check out your portfolio center.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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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