Correlation Between BYD ELECTRONIC and STMicroelectronics

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

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

Diversification Opportunities for BYD ELECTRONIC and STMicroelectronics

-0.26

Correlation Coefficient

BYD ELECTRONIC  STMicroelectronics

Very good diversification

The 3 months correlation between BYD and STMicroelectronics is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BYD ELECTRONIC and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and BYD ELECTRONIC 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 BYD ELECTRONIC 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 BYD ELECTRONIC i.e., BYD ELECTRONIC and STMicroelectronics go up and down completely randomly.

Pair Corralation between BYD ELECTRONIC and STMicroelectronics

Assuming the 90 days trading horizon BYD ELECTRONIC is expected to generate 2.37 times more return on investment than STMicroelectronics. However, BYD ELECTRONIC is 2.37 times more volatile than STMicroelectronics NV. It trades about 0.15 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.06 per unit of risk. If you would invest  310.00  in BYD ELECTRONIC on September 4, 2024 and sell it today you would earn a total of  151.00  from holding BYD ELECTRONIC or generate 48.71% return on investment over 90 days.

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

BYD ELECTRONIC  vs.  STMicroelectronics NV

BYD ELECTRONIC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BYD ELECTRONIC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, BYD ELECTRONIC unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with BYD ELECTRONIC and STMicroelectronics

The main advantage of trading using opposite BYD ELECTRONIC and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD ELECTRONIC 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 BYD ELECTRONIC 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.