Correlation Between STMICROELECTRONICS and Tokyo Gas

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

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

Diversification Opportunities for STMICROELECTRONICS and Tokyo Gas

-0.68

Correlation Coefficient

STMICROELECTRONICS  Tokyo Gas

Excellent diversification

The 3 months correlation between STMICROELECTRONICS and Tokyo is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Tokyo Gas CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Gas CoLtd 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 Tokyo Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Gas CoLtd has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Tokyo Gas go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Tokyo Gas

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 1.26 times more return on investment than Tokyo Gas. However, STMICROELECTRONICS is 1.26 times more volatile than Tokyo Gas CoLtd. It trades about -0.05 of its potential returns per unit of risk. Tokyo Gas CoLtd is currently generating about -0.15 per unit of risk. If you would invest  2,503  in STMICROELECTRONICS on October 11, 2024 and sell it today you would lose (57.00) from holding STMICROELECTRONICS or give up 2.28% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  Tokyo Gas CoLtd

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.

Tokyo Gas CoLtd

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Gas CoLtd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyo Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMICROELECTRONICS and Tokyo Gas

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

The idea behind STMICROELECTRONICS and Tokyo Gas CoLtd 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.