Correlation Between STMICROELECTRONICS and Companhia

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

By analyzing existing cross correlation between STMICROELECTRONICS and Companhia de Saneamento, you can compare the effects of market volatilities on STMICROELECTRONICS and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and Companhia.

Diversification Opportunities for STMICROELECTRONICS and Companhia

-0.13

Correlation Coefficient

STMICROELECTRONICS  Companhia

Good diversification

The 3 months correlation between STMICROELECTRONICS and Companhia is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Companhia go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Companhia

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Companhia. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.26 times less risky than Companhia. The stock trades about -0.1 of its potential returns per unit of risk. The Companhia de Saneamento is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,430  in Companhia de Saneamento on October 6, 2024 and sell it today you would lose (30.00) from holding Companhia de Saneamento or give up 2.1% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  Companhia de Saneamento

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 rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMICROELECTRONICS and Companhia

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

The idea behind STMICROELECTRONICS and Companhia de Saneamento 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.