Correlation Between Cembra Money and STMicroelectronics

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

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

Diversification Opportunities for Cembra Money and STMicroelectronics

-0.25

Correlation Coefficient

Cembra Money  STMicroelectronics

Very good diversification

The 3 months correlation between Cembra and STMicroelectronics is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cembra Money Bank and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Cembra Money 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 Cembra Money Bank 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 Cembra Money i.e., Cembra Money and STMicroelectronics go up and down completely randomly.

Pair Corralation between Cembra Money and STMicroelectronics

Assuming the 90 days trading horizon Cembra Money Bank is expected to generate 0.5 times more return on investment than STMicroelectronics. However, Cembra Money Bank is 1.99 times less risky than STMicroelectronics. It trades about 0.1 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.06 per unit of risk. If you would invest  5,974  in Cembra Money Bank on October 4, 2024 and sell it today you would earn a total of  2,221  from holding Cembra Money Bank or generate 37.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Cembra Money Bank  vs.  STMicroelectronics NV

Cembra Money Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cembra Money Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cembra Money 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

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 comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cembra Money and STMicroelectronics

The main advantage of trading using opposite Cembra Money and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cembra Money 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 Cembra Money Bank 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.