Correlation Between STMICROELECTRONICS and China Resources
Can any of the company-specific risk be diversified away by investing in both STMICROELECTRONICS and China Resources 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 China Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMICROELECTRONICS and China Resources Beer, you can compare the effects of market volatilities on STMICROELECTRONICS and China Resources 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 China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and China Resources.
Diversification Opportunities for STMICROELECTRONICS and China Resources
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between STMICROELECTRONICS and China is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and China Resources Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Beer 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 are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Beer has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and China Resources go up and down completely randomly.
Pair Corralation between STMICROELECTRONICS and China Resources
Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 0.62 times more return on investment than China Resources. However, STMICROELECTRONICS is 1.61 times less risky than China Resources. It trades about -0.11 of its potential returns per unit of risk. China Resources Beer is currently generating about -0.07 per unit of risk. If you would invest 2,498 in STMICROELECTRONICS on November 6, 2024 and sell it today you would lose (349.00) from holding STMICROELECTRONICS or give up 13.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.33% |
| Values | Daily Returns |
STMICROELECTRONICS vs. China Resources Beer
Performance |
| Timeline |
| STMICROELECTRONICS |
| China Resources Beer |
STMICROELECTRONICS and China Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMICROELECTRONICS and China Resources
The main advantage of trading using opposite STMICROELECTRONICS and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, China Resources 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 China Resources will offset losses from the drop in China Resources' long position.The idea behind STMICROELECTRONICS and China Resources Beer 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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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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