Correlation Between STMicroelectronics and Siemens Energy

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Siemens 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 Siemens 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 Siemens Energy AG, you can compare the effects of market volatilities on STMicroelectronics and Siemens 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 Siemens Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Siemens Energy.

Diversification Opportunities for STMicroelectronics and Siemens Energy

-0.41

Correlation Coefficient

STMicroelectronics  Siemens Energy

Very good diversification

The 3 months correlation between STMicroelectronics and Siemens is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Siemens Energy AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens Energy AG 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 Siemens Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens Energy AG has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Siemens Energy go up and down completely randomly.

Pair Corralation between STMicroelectronics and Siemens Energy

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.77 times more return on investment than Siemens Energy. However, STMicroelectronics NV is 1.3 times less risky than Siemens Energy. It trades about -0.04 of its potential returns per unit of risk. Siemens Energy AG is currently generating about -0.04 per unit of risk. If you would invest  2,459  in STMicroelectronics NV on October 6, 2024 and sell it today you would lose (39.00) from holding STMicroelectronics NV or give up 1.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

STMicroelectronics NV  vs.  Siemens Energy AG

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 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.

Siemens Energy AG

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens Energy AG are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Siemens Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Siemens Energy

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

The idea behind STMicroelectronics NV and Siemens Energy AG 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.