Correlation Between ASML Holding and Tower Semiconductor

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

Diversification Opportunities for ASML Holding and Tower Semiconductor

-0.09

Correlation Coefficient

ASML Holding  Tower Semiconductor

Good diversification

The 3 months correlation between ASML and Tower is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of ASML Holding i.e., ASML Holding and Tower Semiconductor go up and down completely randomly.

Pair Corralation between ASML Holding and Tower Semiconductor

Given the investment horizon of 90 days ASML Holding NV is expected to generate 1.28 times more return on investment than Tower Semiconductor. However, ASML Holding is 1.28 times more volatile than Tower Semiconductor. It trades about 0.22 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.21 per unit of risk. If you would invest  70,652  in ASML Holding NV on October 9, 2024 and sell it today you would earn a total of  6,199  from holding ASML Holding NV or generate 8.77% return on investment over 90 days.

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

ASML Holding NV  vs.  Tower Semiconductor

ASML Holding NV

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Tower Semiconductor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Tower Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASML Holding and Tower Semiconductor

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

The idea behind ASML Holding NV and Tower Semiconductor 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.