Correlation Between Applied Materials and ASML Holding

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

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

Diversification Opportunities for Applied Materials and ASML Holding

0.43

Correlation Coefficient

Applied Materials  ASML Holding

Very weak diversification

The 3 months correlation between Applied and ASML is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials 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 Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and ASML Holding go up and down completely randomly.

Pair Corralation between Applied Materials and ASML Holding

Assuming the 90 days horizon Applied Materials is expected to under-perform the ASML Holding. In addition to that, Applied Materials is 1.37 times more volatile than ASML Holding NV. It trades about -0.06 of its total potential returns per unit of risk. ASML Holding NV is currently generating about 0.24 per unit of volatility. If you would invest  64,550  in ASML Holding NV on November 29, 2024 and sell it today you would earn a total of  6,880  from holding ASML Holding NV or generate 10.66% return on investment over 90 days.

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

Applied Materials  vs.  ASML Holding NV

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ASML Holding NV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, ASML Holding may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Applied Materials and ASML Holding

The main advantage of trading using opposite Applied Materials and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.