Correlation Between MagnaChip Semiconductor and ASML Holding

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

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

Diversification Opportunities for MagnaChip Semiconductor and ASML Holding

-0.09

Correlation Coefficient

MagnaChip Semiconductor  ASML Holding

Good diversification

The 3 months correlation between MagnaChip and ASML is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and ASML Holding go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and ASML Holding

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the ASML Holding. In addition to that, MagnaChip Semiconductor is 1.11 times more volatile than ASML Holding NV. It trades about -0.08 of its total potential returns per unit of risk. ASML Holding NV is currently generating about 0.07 per unit of volatility. If you would invest  65,149  in ASML Holding NV on February 4, 2024 and sell it today you would earn a total of  25,014  from holding ASML Holding NV or generate 38.4% return on investment over 90 days.

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

MagnaChip Semiconductor  vs.  ASML Holding NV

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

ASML Holding NV

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with MagnaChip Semiconductor and ASML Holding

The main advantage of trading using opposite MagnaChip Semiconductor and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.