Correlation Between STMicroelectronics and Renesas Electronics

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

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

Diversification Opportunities for STMicroelectronics and Renesas Electronics

0.41

Correlation Coefficient

STMicroelectronics  Renesas Electronics

Very weak diversification

The 3 months correlation between STMicroelectronics and Renesas is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 NV are associated (or correlated) with Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Renesas Electronics go up and down completely randomly.

Pair Corralation between STMicroelectronics and Renesas Electronics

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.73 times more return on investment than Renesas Electronics. However, STMicroelectronics NV is 1.37 times less risky than Renesas Electronics. It trades about 0.02 of its potential returns per unit of risk. Renesas Electronics is currently generating about -0.02 per unit of risk. If you would invest  2,485  in STMicroelectronics NV on September 14, 2024 and sell it today you would earn a total of  24.00  from holding STMicroelectronics NV or generate 0.97% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Renesas Electronics

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMicroelectronics and Renesas Electronics

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

The idea behind STMicroelectronics NV and Renesas Electronics 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.