Correlation Between CNH Industrial and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both CNH Industrial and STMicroelectronics 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 CNH Industrial and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CNH Industrial NV and STMicroelectronics NV, you can compare the effects of market volatilities on CNH Industrial and STMicroelectronics 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 CNH Industrial with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNH Industrial and STMicroelectronics.
Diversification Opportunities for CNH Industrial and STMicroelectronics
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CNH and STMicroelectronics is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and CNH Industrial 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 CNH Industrial NV are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of CNH Industrial i.e., CNH Industrial and STMicroelectronics go up and down completely randomly.
Pair Corralation between CNH Industrial and STMicroelectronics
Assuming the 90 days trading horizon CNH Industrial NV is expected to generate 1.56 times more return on investment than STMicroelectronics. However, CNH Industrial is 1.56 times more volatile than STMicroelectronics NV. It trades about 0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.06 per unit of risk. If you would invest 1,206 in CNH Industrial NV on October 16, 2024 and sell it today you would lose (119.00) from holding CNH Industrial NV or give up 9.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.39% |
| Values | Daily Returns |
CNH Industrial NV vs. STMicroelectronics NV
Performance |
| Timeline |
| CNH Industrial NV |
| STMicroelectronics |
CNH Industrial and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CNH Industrial and STMicroelectronics
The main advantage of trading using opposite CNH Industrial and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.| CNH Industrial vs. Empire Metals Limited | CNH Industrial vs. Indutrade AB | CNH Industrial vs. Verizon Communications | CNH Industrial vs. Hochschild Mining plc |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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