Correlation Between Seche Environnement and STMicroelectronics

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

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

Diversification Opportunities for Seche Environnement and STMicroelectronics

0.54

Correlation Coefficient

Seche Environnement  STMicroelectronics

Very weak diversification

The 3 months correlation between Seche and STMicroelectronics is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Seche Environnement SA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Seche Environnement 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 Seche Environnement SA 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 Seche Environnement i.e., Seche Environnement and STMicroelectronics go up and down completely randomly.

Pair Corralation between Seche Environnement and STMicroelectronics

Assuming the 90 days trading horizon Seche Environnement SA is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Seche Environnement SA is 1.26 times less risky than STMicroelectronics. The stock trades about -0.14 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,722  in STMicroelectronics NV on September 3, 2024 and sell it today you would lose (306.00) from holding STMicroelectronics NV or give up 11.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Seche Environnement SA  vs.  STMicroelectronics NV

Seche Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seche Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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. 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 Seche Environnement and STMicroelectronics

The main advantage of trading using opposite Seche Environnement and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seche Environnement 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 Seche Environnement SA 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.