Correlation Between STMicroelectronics and AOYAMA TRADING

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

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

Diversification Opportunities for STMicroelectronics and AOYAMA TRADING

-0.68

Correlation Coefficient

STMicroelectronics  AOYAMA TRADING

Excellent diversification

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

Pair Corralation between STMicroelectronics and AOYAMA TRADING

Assuming the 90 days horizon STMicroelectronics is expected to generate 18.48 times less return on investment than AOYAMA TRADING. But when comparing it to its historical volatility, STMicroelectronics NV is 2.24 times less risky than AOYAMA TRADING. It trades about 0.02 of its potential returns per unit of risk. AOYAMA TRADING is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  835.00  in AOYAMA TRADING on September 12, 2024 and sell it today you would earn a total of  575.00  from holding AOYAMA TRADING or generate 68.86% return on investment over 90 days.

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

STMicroelectronics NV  vs.  AOYAMA TRADING

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

AOYAMA TRADING

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with STMicroelectronics and AOYAMA TRADING

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

The idea behind STMicroelectronics NV and AOYAMA TRADING 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.