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

0.71

Correlation Coefficient

MagnaChip Semiconductor  ASML Holding

Poor diversification

The 3 months correlation between MagnaChip and ASML is 0.71. 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 generate 0.89 times more return on investment than ASML Holding. However, MagnaChip Semiconductor is 1.12 times less risky than ASML Holding. It trades about -0.01 of its potential returns per unit of risk. ASML Holding NV is currently generating about -0.09 per unit of risk. If you would invest  454.00  in MagnaChip Semiconductor on September 1, 2024 and sell it today you would lose (22.00) from holding MagnaChip Semiconductor or give up 4.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
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 fairly strong basic indicators, MagnaChip Semiconductor is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 inconsistent performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.