Correlation Between ASML Holding and Applied Materials

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

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

Diversification Opportunities for ASML Holding and Applied Materials

0.85

Correlation Coefficient

ASML Holding  Applied Materials

Very poor diversification

The 3 months correlation between ASML and Applied is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and ASML Holding 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 ASML Holding NV are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of ASML Holding i.e., ASML Holding and Applied Materials go up and down completely randomly.

Pair Corralation between ASML Holding and Applied Materials

Assuming the 90 days trading horizon ASML Holding NV is expected to generate 0.82 times more return on investment than Applied Materials. However, ASML Holding NV is 1.22 times less risky than Applied Materials. It trades about -0.02 of its potential returns per unit of risk. Applied Materials is currently generating about -0.06 per unit of risk. If you would invest  67,564  in ASML Holding NV on December 29, 2024 and sell it today you would lose (3,354) from holding ASML Holding NV or give up 4.96% of portfolio value over 90 days.

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

ASML Holding NV  vs.  Applied Materials

ASML Holding NV

Risk-Adjusted Performance

Very Weak

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

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ASML Holding and Applied Materials

The main advantage of trading using opposite ASML Holding and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASML Holding position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.

The idea behind ASML Holding NV and Applied Materials 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.