Correlation Between STMICROELECTRONICS and Benchmark Electronics

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

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

Diversification Opportunities for STMICROELECTRONICS and Benchmark Electronics

-0.6

Correlation Coefficient

STMICROELECTRONICS  Benchmark Electronics

Excellent diversification

The 3 months correlation between STMICROELECTRONICS and Benchmark is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics and STMICROELECTRONICS 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 STMICROELECTRONICS are associated (or correlated) with Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Benchmark Electronics go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Benchmark Electronics

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 1.33 times more return on investment than Benchmark Electronics. However, STMICROELECTRONICS is 1.33 times more volatile than Benchmark Electronics. It trades about 0.01 of its potential returns per unit of risk. Benchmark Electronics is currently generating about -0.16 per unit of risk. If you would invest  2,404  in STMICROELECTRONICS on September 29, 2024 and sell it today you would lose (1.00) from holding STMICROELECTRONICS or give up 0.04% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  Benchmark Electronics

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Benchmark Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benchmark Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with STMICROELECTRONICS and Benchmark Electronics

The main advantage of trading using opposite STMICROELECTRONICS and Benchmark Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, Benchmark Electronics 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 Benchmark Electronics will offset losses from the drop in Benchmark Electronics' long position.

The idea behind STMICROELECTRONICS and Benchmark Electronics 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.