Correlation Between STMicroelectronics and Indutrade
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Indutrade 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 STMicroelectronics and Indutrade into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV and Indutrade AB, you can compare the effects of market volatilities on STMicroelectronics and Indutrade 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 STMicroelectronics with a short position of Indutrade. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Indutrade.
Diversification Opportunities for STMicroelectronics and Indutrade
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between STMicroelectronics and Indutrade is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Indutrade AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indutrade AB and STMicroelectronics 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 STMicroelectronics NV are associated (or correlated) with Indutrade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indutrade AB has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Indutrade go up and down completely randomly.
Pair Corralation between STMicroelectronics and Indutrade
Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Indutrade. In addition to that, STMicroelectronics is 1.49 times more volatile than Indutrade AB. It trades about -0.13 of its total potential returns per unit of risk. Indutrade AB is currently generating about 0.02 per unit of volatility. If you would invest 26,970 in Indutrade AB on August 31, 2024 and sell it today you would earn a total of 680.00 from holding Indutrade AB or generate 2.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
STMicroelectronics NV vs. Indutrade AB
Performance |
| Timeline |
| STMicroelectronics |
| Indutrade AB |
STMicroelectronics and Indutrade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and Indutrade
The main advantage of trading using opposite STMicroelectronics and Indutrade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, Indutrade 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 Indutrade will offset losses from the drop in Indutrade's long position.| STMicroelectronics vs. Science in Sport | STMicroelectronics vs. Zanaga Iron Ore | STMicroelectronics vs. United States Steel | STMicroelectronics vs. Baker Steel Resources |
| Indutrade vs. Neometals | Indutrade vs. Coor Service Management | Indutrade vs. Aeorema Communications Plc | Indutrade vs. JLEN Environmental Assets |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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