Correlation Between Peak Resources and STMICROELECTRONICS

Can any of the company-specific risk be diversified away by investing in both Peak Resources 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 Peak Resources and STMICROELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Peak Resources Limited and STMICROELECTRONICS, you can compare the effects of market volatilities on Peak Resources 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 Peak Resources with a short position of STMICROELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Peak Resources and STMICROELECTRONICS.

Diversification Opportunities for Peak Resources and STMICROELECTRONICS

0.68

Correlation Coefficient

Peak Resources  STMICROELECTRONICS

Poor diversification

The 3 months correlation between Peak and STMICROELECTRONICS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Peak Resources Limited and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Peak Resources 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 Peak Resources Limited 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 Peak Resources i.e., Peak Resources and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Peak Resources and STMICROELECTRONICS

Assuming the 90 days horizon Peak Resources Limited is expected to under-perform the STMICROELECTRONICS. In addition to that, Peak Resources is 4.6 times more volatile than STMICROELECTRONICS. It trades about -0.05 of its total potential returns per unit of risk. STMICROELECTRONICS is currently generating about 0.01 per unit of volatility. If you would invest  2,511  in STMICROELECTRONICS on September 13, 2024 and sell it today you would lose (12.00) from holding STMICROELECTRONICS or give up 0.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Peak Resources Limited  vs.  STMICROELECTRONICS

Peak Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peak Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Peak Resources and STMICROELECTRONICS

The main advantage of trading using opposite Peak Resources and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peak Resources 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's long position.

The idea behind Peak Resources Limited and STMICROELECTRONICS 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.