Correlation Between Compagnie Plastic and STMicroelectronics

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

By analyzing existing cross correlation between Compagnie Plastic Omnium and STMicroelectronics NV, you can compare the effects of market volatilities on Compagnie Plastic and STMicroelectronics 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 Compagnie Plastic with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie Plastic and STMicroelectronics.

Diversification Opportunities for Compagnie Plastic and STMicroelectronics

0.33

Correlation Coefficient

Compagnie Plastic  STMicroelectronics

Weak diversification

The 3 months correlation between Compagnie and STMicroelectronics is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie Plastic Omnium and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Compagnie Plastic 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 Compagnie Plastic Omnium are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Compagnie Plastic i.e., Compagnie Plastic and STMicroelectronics go up and down completely randomly.

Pair Corralation between Compagnie Plastic and STMicroelectronics

Assuming the 90 days trading horizon Compagnie Plastic Omnium is expected to generate 0.92 times more return on investment than STMicroelectronics. However, Compagnie Plastic Omnium is 1.09 times less risky than STMicroelectronics. It trades about -0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.04 per unit of risk. If you would invest  999.00  in Compagnie Plastic Omnium on December 28, 2024 and sell it today you would lose (53.00) from holding Compagnie Plastic Omnium or give up 5.31% of portfolio value over 90 days.

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

Compagnie Plastic Omnium  vs.  STMicroelectronics NV

Compagnie Plastic Omnium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compagnie Plastic Omnium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Compagnie Plastic is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Compagnie Plastic and STMicroelectronics

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

The idea behind Compagnie Plastic Omnium and STMicroelectronics NV 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.