Correlation Between Tokyo Electron and ASML Holding

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

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

Diversification Opportunities for Tokyo Electron and ASML Holding

0.84

Correlation Coefficient

Tokyo Electron  ASML Holding

Very poor diversification

The 3 months correlation between Tokyo and ASML is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron 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 Tokyo Electron 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 Tokyo Electron 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 Tokyo Electron i.e., Tokyo Electron and ASML Holding go up and down completely randomly.

Pair Corralation between Tokyo Electron and ASML Holding

Assuming the 90 days horizon Tokyo Electron is expected to under-perform the ASML Holding. In addition to that, Tokyo Electron is 1.11 times more volatile than ASML Holding NV. It trades about -0.02 of its total potential returns per unit of risk. ASML Holding NV is currently generating about -0.01 per unit of volatility. If you would invest  73,104  in ASML Holding NV on February 6, 2025 and sell it today you would lose (4,472) from holding ASML Holding NV or give up 6.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Tokyo Electron  vs.  ASML Holding NV

Tokyo Electron

Risk-Adjusted Performance

Very Weak

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

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 essential indicators, ASML Holding is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tokyo Electron and ASML Holding

The main advantage of trading using opposite Tokyo Electron and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokyo Electron 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 Tokyo Electron 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..