Correlation Between STMicroelectronics and JAPAN EX

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

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

Diversification Opportunities for STMicroelectronics and JAPAN EX

0.27

Correlation Coefficient

STMicroelectronics  JAPAN EX

Modest diversification

The 3 months correlation between STMicroelectronics and JAPAN is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and JAPAN EX UNADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN EX UNADR 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 JAPAN EX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN EX UNADR has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and JAPAN EX go up and down completely randomly.

Pair Corralation between STMicroelectronics and JAPAN EX

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the JAPAN EX. In addition to that, STMicroelectronics is 1.07 times more volatile than JAPAN EX UNADR. It trades about -0.08 of its total potential returns per unit of risk. JAPAN EX UNADR is currently generating about -0.03 per unit of volatility. If you would invest  1,100  in JAPAN EX UNADR on September 30, 2024 and sell it today you would lose (50.00) from holding JAPAN EX UNADR or give up 4.55% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  JAPAN EX UNADR

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

JAPAN EX UNADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN EX UNADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, JAPAN EX 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 JAPAN EX

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

The idea behind STMicroelectronics NV and JAPAN EX UNADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.