Correlation Between STMICROELECTRONICS and SUMITOMO CORP

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

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

Diversification Opportunities for STMICROELECTRONICS and SUMITOMO CORP

0.06

Correlation Coefficient

STMICROELECTRONICS  SUMITOMO CORP

Significant diversification

The 3 months correlation between STMICROELECTRONICS and SUMITOMO is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and SUMITOMO P SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUMITOMO P SP 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 SUMITOMO CORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUMITOMO P SP has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and SUMITOMO CORP go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and SUMITOMO CORP

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the SUMITOMO CORP. In addition to that, STMICROELECTRONICS is 1.26 times more volatile than SUMITOMO P SP. It trades about -0.04 of its total potential returns per unit of risk. SUMITOMO P SP is currently generating about 0.01 per unit of volatility. If you would invest  1,980  in SUMITOMO P SP on October 24, 2024 and sell it today you would earn a total of  0.00  from holding SUMITOMO P SP or generate 0.0% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  SUMITOMO P SP

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

SUMITOMO P SP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMICROELECTRONICS and SUMITOMO CORP

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

The idea behind STMICROELECTRONICS and SUMITOMO P SP 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.