Correlation Between STMICROELECTRONICS and Toyota Tsusho

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

By analyzing existing cross correlation between STMICROELECTRONICS and Toyota Tsusho, you can compare the effects of market volatilities on STMICROELECTRONICS and Toyota Tsusho 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 Toyota Tsusho. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and Toyota Tsusho.

Diversification Opportunities for STMICROELECTRONICS and Toyota Tsusho

0.1

Correlation Coefficient

STMICROELECTRONICS  Toyota Tsusho

Average diversification

The 3 months correlation between STMICROELECTRONICS and Toyota is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Toyota Tsusho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Tsusho 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 Toyota Tsusho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Tsusho has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Toyota Tsusho go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Toyota Tsusho

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Toyota Tsusho. In addition to that, STMICROELECTRONICS is 1.03 times more volatile than Toyota Tsusho. It trades about -0.02 of its total potential returns per unit of risk. Toyota Tsusho is currently generating about 0.04 per unit of volatility. If you would invest  1,167  in Toyota Tsusho on September 14, 2024 and sell it today you would earn a total of  463.00  from holding Toyota Tsusho or generate 39.67% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  Toyota Tsusho

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Toyota Tsusho

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Tsusho has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toyota Tsusho is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with STMICROELECTRONICS and Toyota Tsusho

The main advantage of trading using opposite STMICROELECTRONICS and Toyota Tsusho positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, Toyota Tsusho 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 Toyota Tsusho will offset losses from the drop in Toyota Tsusho's long position.

The idea behind STMICROELECTRONICS and Toyota Tsusho 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.