Correlation Between STMICROELECTRONICS and Transurban

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

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

Diversification Opportunities for STMICROELECTRONICS and Transurban

0.53

Correlation Coefficient

STMICROELECTRONICS  Transurban

Very weak diversification

The 3 months correlation between STMICROELECTRONICS and Transurban is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Transurban go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Transurban

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Transurban. In addition to that, STMICROELECTRONICS is 1.87 times more volatile than Transurban Group. It trades about -0.05 of its total potential returns per unit of risk. Transurban Group is currently generating about -0.05 per unit of volatility. If you would invest  815.00  in Transurban Group on September 5, 2024 and sell it today you would lose (31.00) from holding Transurban Group or give up 3.8% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  Transurban Group

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 unsteady 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.

Transurban Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transurban Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Transurban 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 Transurban

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

The idea behind STMICROELECTRONICS and Transurban Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.