Correlation Between Sumitomo Mitsui and STMicroelectronics

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

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

Diversification Opportunities for Sumitomo Mitsui and STMicroelectronics

0.16

Correlation Coefficient

Sumitomo Mitsui  STMicroelectronics

Average diversification

The 3 months correlation between Sumitomo and STMicroelectronics is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Sumitomo Mitsui 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 Sumitomo Mitsui 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 Sumitomo Mitsui i.e., Sumitomo Mitsui and STMicroelectronics go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and STMicroelectronics

Assuming the 90 days horizon Sumitomo Mitsui Construction is expected to generate 1.1 times more return on investment than STMicroelectronics. However, Sumitomo Mitsui is 1.1 times more volatile than STMicroelectronics NV. It trades about -0.02 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.25 per unit of risk. If you would invest  250.00  in Sumitomo Mitsui Construction on October 8, 2024 and sell it today you would lose (2.00) from holding Sumitomo Mitsui Construction or give up 0.8% of portfolio value over 90 days.

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

Sumitomo Mitsui Construction  vs.  STMicroelectronics NV

Sumitomo Mitsui Cons

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The newest 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 Sumitomo Mitsui and STMicroelectronics

The main advantage of trading using opposite Sumitomo Mitsui and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui 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 Sumitomo Mitsui 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.