Correlation Between STMICROELECTRONICS and ASX

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

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

Diversification Opportunities for STMICROELECTRONICS and ASX

-0.09

Correlation Coefficient

STMICROELECTRONICS  ASX

Good diversification

The 3 months correlation between STMICROELECTRONICS and ASX is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and ASX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX Limited 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 ASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX Limited has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and ASX go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and ASX

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the ASX. In addition to that, STMICROELECTRONICS is 1.4 times more volatile than ASX Limited. It trades about -0.09 of its total potential returns per unit of risk. ASX Limited is currently generating about -0.01 per unit of volatility. If you would invest  3,900  in ASX Limited on September 28, 2024 and sell it today you would lose (40.00) from holding ASX Limited or give up 1.03% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  ASX Limited

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 latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ASX Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMICROELECTRONICS and ASX

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

The idea behind STMICROELECTRONICS and ASX Limited 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.