Correlation Between Auto Trader and STM Group
Can any of the company-specific risk be diversified away by investing in both Auto Trader and STM Group 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 Auto Trader and STM Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Auto Trader Group and STM Group Plc, you can compare the effects of market volatilities on Auto Trader and STM Group 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 Auto Trader with a short position of STM Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and STM Group.
Diversification Opportunities for Auto Trader and STM Group
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Auto and STM is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and STM Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STM Group Plc and Auto Trader 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 Auto Trader Group are associated (or correlated) with STM Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STM Group Plc has no effect on the direction of Auto Trader i.e., Auto Trader and STM Group go up and down completely randomly.
Pair Corralation between Auto Trader and STM Group
Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the STM Group. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 1.26 times less risky than STM Group. The stock trades about -0.16 of its potential returns per unit of risk. The STM Group Plc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 6,050 in STM Group Plc on August 29, 2024 and sell it today you would earn a total of 100.00 from holding STM Group Plc or generate 1.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 22.73% |
| Values | Daily Returns |
Auto Trader Group vs. STM Group Plc
Performance |
| Timeline |
| Auto Trader Group |
| STM Group Plc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Auto Trader and STM Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Auto Trader and STM Group
The main advantage of trading using opposite Auto Trader and STM Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, STM Group 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 STM Group will offset losses from the drop in STM Group's long position.| Auto Trader vs. The Mercantile Investment | Auto Trader vs. Herald Investment Trust | Auto Trader vs. Diversified Energy | Auto Trader vs. Orient Telecoms |
| STM Group vs. Silvercorp Metals | STM Group vs. Bisichi Mining PLC | STM Group vs. International Consolidated Airlines | STM Group vs. Greenroc Mining PLC |
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 Stocks Directory module to find actively traded stocks across global markets.
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