Correlation Between Renesas Electronics and STMicroelectronics

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

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

Diversification Opportunities for Renesas Electronics and STMicroelectronics

0.46

Correlation Coefficient

Renesas Electronics  STMicroelectronics

Very weak diversification

The 3 months correlation between Renesas and STMicroelectronics is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and STMicroelectronics go up and down completely randomly.

Pair Corralation between Renesas Electronics and STMicroelectronics

Assuming the 90 days horizon Renesas Electronics is expected to generate 1.54 times more return on investment than STMicroelectronics. However, Renesas Electronics is 1.54 times more volatile than STMicroelectronics NV. It trades about 0.03 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.0 per unit of risk. If you would invest  1,221  in Renesas Electronics on September 27, 2024 and sell it today you would earn a total of  9.00  from holding Renesas Electronics or generate 0.74% return on investment over 90 days.

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

Renesas Electronics  vs.  STMicroelectronics NV

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics 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.

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 Renesas Electronics and STMicroelectronics

The main advantage of trading using opposite Renesas Electronics and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.