Correlation Between ASML Holding and Shell PLC

Can any of the company-specific risk be diversified away by investing in both ASML Holding and Shell PLC 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 Shell PLC 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 Shell PLC, you can compare the effects of market volatilities on ASML Holding and Shell PLC 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 Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASML Holding and Shell PLC.

Diversification Opportunities for ASML Holding and Shell PLC

0.07

Correlation Coefficient

ASML Holding  Shell PLC

Significant diversification

The 3 months correlation between ASML and Shell is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of ASML Holding i.e., ASML Holding and Shell PLC go up and down completely randomly.

Pair Corralation between ASML Holding and Shell PLC

Assuming the 90 days trading horizon ASML Holding NV is expected to under-perform the Shell PLC. In addition to that, ASML Holding is 2.12 times more volatile than Shell PLC. It trades about -0.03 of its total potential returns per unit of risk. Shell PLC is currently generating about 0.18 per unit of volatility. If you would invest  2,944  in Shell PLC on December 29, 2024 and sell it today you would earn a total of  414.00  from holding Shell PLC or generate 14.06% return on investment over 90 days.

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

ASML Holding NV  vs.  Shell PLC

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. In spite of comparatively stable basic indicators, ASML Holding is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Shell PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Shell PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASML Holding and Shell PLC

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

The idea behind ASML Holding NV and Shell PLC 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.