Correlation Between CMG Cleantech and STMicroelectronics

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

By analyzing existing cross correlation between CMG Cleantech SA and STMicroelectronics NV, you can compare the effects of market volatilities on CMG Cleantech 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 CMG Cleantech with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMG Cleantech and STMicroelectronics.

Diversification Opportunities for CMG Cleantech and STMicroelectronics

-0.5

Correlation Coefficient

CMG Cleantech  STMicroelectronics

Very good diversification

The 3 months correlation between CMG and STMicroelectronics is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding CMG Cleantech SA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and CMG Cleantech 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 CMG Cleantech SA 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 CMG Cleantech i.e., CMG Cleantech and STMicroelectronics go up and down completely randomly.

Pair Corralation between CMG Cleantech and STMicroelectronics

Assuming the 90 days trading horizon CMG Cleantech SA is expected to generate 2.0 times more return on investment than STMicroelectronics. However, CMG Cleantech is 2.0 times more volatile than STMicroelectronics NV. It trades about 0.23 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.07 per unit of risk. If you would invest  68.00  in CMG Cleantech SA on September 3, 2024 and sell it today you would earn a total of  55.00  from holding CMG Cleantech SA or generate 80.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CMG Cleantech SA  vs.  STMicroelectronics NV

CMG Cleantech SA

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMG Cleantech SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CMG Cleantech reported solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with CMG Cleantech and STMicroelectronics

The main advantage of trading using opposite CMG Cleantech and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMG Cleantech 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.

The idea behind CMG Cleantech SA and STMicroelectronics NV 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.