Correlation Between Shell PLC and ASML Holding

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

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

Diversification Opportunities for Shell PLC and ASML Holding

0.07

Correlation Coefficient

Shell PLC  ASML Holding

Significant diversification

The 3 months correlation between Shell and ASML is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC 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 Shell PLC 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 Shell PLC 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 Shell PLC i.e., Shell PLC and ASML Holding go up and down completely randomly.

Pair Corralation between Shell PLC and ASML Holding

Assuming the 90 days trading horizon Shell PLC is expected to generate 0.47 times more return on investment than ASML Holding. However, Shell PLC is 2.12 times less risky than ASML Holding. It trades about 0.18 of its potential returns per unit of risk. ASML Holding NV is currently generating about -0.03 per unit of risk. 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

Shell PLC  vs.  ASML Holding NV

Shell PLC

Risk-Adjusted Performance

Solid

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.

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.

Pair Trading with Shell PLC and ASML Holding

The main advantage of trading using opposite Shell PLC and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell PLC 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 Shell PLC 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.