Correlation Between Daito Trust and STMicroelectronics

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

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

Diversification Opportunities for Daito Trust and STMicroelectronics

0.02

Correlation Coefficient

Daito Trust  STMicroelectronics

Significant diversification

The 3 months correlation between Daito and STMicroelectronics is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Daito Trust Construction and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Daito Trust 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 Daito Trust Construction 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 Daito Trust i.e., Daito Trust and STMicroelectronics go up and down completely randomly.

Pair Corralation between Daito Trust and STMicroelectronics

Assuming the 90 days horizon Daito Trust Construction is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Daito Trust Construction is 1.61 times less risky than STMicroelectronics. The stock trades about -0.01 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,500  in STMicroelectronics NV on September 20, 2024 and sell it today you would lose (10.00) from holding STMicroelectronics NV or give up 0.4% of portfolio value over 90 days.

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

Daito Trust Construction  vs.  STMicroelectronics NV

Daito Trust Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daito Trust Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Daito Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Daito Trust and STMicroelectronics

The main advantage of trading using opposite Daito Trust and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daito Trust 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 Daito Trust Construction 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.