Correlation Between STMicroelectronics and CMG Cleantech

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

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

Diversification Opportunities for STMicroelectronics and CMG Cleantech

-0.5

Correlation Coefficient

STMicroelectronics  CMG Cleantech

Very good diversification

The 3 months correlation between STMicroelectronics and CMG is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and CMG Cleantech SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMG Cleantech SA 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 CMG Cleantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMG Cleantech SA has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and CMG Cleantech go up and down completely randomly.

Pair Corralation between STMicroelectronics and CMG Cleantech

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the CMG Cleantech. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 2.0 times less risky than CMG Cleantech. The stock trades about -0.07 of its potential returns per unit of risk. The CMG Cleantech SA is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  68.00  in CMG Cleantech SA on September 3, 2024 and sell it today you would earn a total of  55.00  from holding CMG Cleantech SA or generate 80.88% return on investment over 90 days.

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

STMicroelectronics NV  vs.  CMG Cleantech SA

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. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

CMG Cleantech SA

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMG Cleantech SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CMG Cleantech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and CMG Cleantech

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

The idea behind STMicroelectronics NV and CMG Cleantech SA 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.