Correlation Between STMicroelectronics and Hitachi Construction

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

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

Diversification Opportunities for STMicroelectronics and Hitachi Construction

-0.17

Correlation Coefficient

STMicroelectronics  Hitachi Construction

Good diversification

The 3 months correlation between STMicroelectronics and Hitachi is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction 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 Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Hitachi Construction go up and down completely randomly.

Pair Corralation between STMicroelectronics and Hitachi Construction

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 1.57 times more return on investment than Hitachi Construction. However, STMicroelectronics is 1.57 times more volatile than Hitachi Construction Machinery. It trades about 0.12 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about 0.05 per unit of risk. If you would invest  2,173  in STMicroelectronics NV on December 10, 2024 and sell it today you would earn a total of  171.00  from holding STMicroelectronics NV or generate 7.87% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Hitachi Construction Machinery

STMicroelectronics

Risk-Adjusted Performance

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.

Hitachi Construction

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hitachi Construction may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with STMicroelectronics and Hitachi Construction

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

The idea behind STMicroelectronics NV and Hitachi Construction Machinery 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.