Correlation Between ASML Holding and Sumco Corp

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

Diversification Opportunities for ASML Holding and Sumco Corp

-0.43

Correlation Coefficient

ASML Holding  Sumco Corp

Very good diversification

The 3 months correlation between ASML and Sumco is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and Sumco Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumco Corp ADR 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 Sumco Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumco Corp ADR has no effect on the direction of ASML Holding i.e., ASML Holding and Sumco Corp go up and down completely randomly.

Pair Corralation between ASML Holding and Sumco Corp

Given the investment horizon of 90 days ASML Holding NV is expected to under-perform the Sumco Corp. But the stock apears to be less risky and, when comparing its historical volatility, ASML Holding NV is 1.47 times less risky than Sumco Corp. The stock trades about -0.08 of its potential returns per unit of risk. The Sumco Corp ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,490  in Sumco Corp ADR on December 5, 2024 and sell it today you would lose (1.00) from holding Sumco Corp ADR or give up 0.07% of portfolio value over 90 days.

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

ASML Holding NV  vs.  Sumco Corp ADR

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 quite persistent primary indicators, ASML Holding is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Sumco Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sumco Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Sumco Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ASML Holding and Sumco Corp

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

The idea behind ASML Holding NV and Sumco Corp ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.