Correlation Between Unity Software and ASML Holding

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

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

Diversification Opportunities for Unity Software and ASML Holding

-0.64

Correlation Coefficient

Unity Software  ASML Holding

Excellent diversification

The 3 months correlation between Unity and ASML is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software 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 Unity Software 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 Unity Software 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 Unity Software i.e., Unity Software and ASML Holding go up and down completely randomly.

Pair Corralation between Unity Software and ASML Holding

Taking into account the 90-day investment horizon Unity Software is expected to under-perform the ASML Holding. But the stock apears to be less risky and, when comparing its historical volatility, Unity Software is 1.17 times less risky than ASML Holding. The stock trades about -0.33 of its potential returns per unit of risk. The ASML Holding NV is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  97,092  in ASML Holding NV on January 20, 2024 and sell it today you would lose (8,189) from holding ASML Holding NV or give up 8.43% of portfolio value over 90 days.

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

Unity Software  vs.  ASML Holding NV

Unity Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

ASML Holding NV

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 8 (%) 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 Unity Software and ASML Holding

The main advantage of trading using opposite Unity Software and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Software 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 Unity Software 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.