Correlation Between STMicroelectronics and NexGen Energy

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

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

Diversification Opportunities for STMicroelectronics and NexGen Energy

-0.55

Correlation Coefficient

STMicroelectronics  NexGen Energy

Excellent diversification

The 3 months correlation between STMicroelectronics and NexGen is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy 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 NV are associated (or correlated) with NexGen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexGen Energy has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and NexGen Energy go up and down completely randomly.

Pair Corralation between STMicroelectronics and NexGen Energy

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.58 times more return on investment than NexGen Energy. However, STMicroelectronics NV is 1.74 times less risky than NexGen Energy. It trades about 0.03 of its potential returns per unit of risk. NexGen Energy is currently generating about -0.23 per unit of risk. If you would invest  2,393  in STMicroelectronics NV on September 28, 2024 and sell it today you would earn a total of  22.00  from holding STMicroelectronics NV or generate 0.92% return on investment over 90 days.

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

STMicroelectronics NV  vs.  NexGen Energy

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 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.

NexGen Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NexGen Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and NexGen Energy

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

The idea behind STMicroelectronics NV and NexGen Energy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.