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
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between STMicroelectronics and Hitachi is 0.28. 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 1.08 times more return on investment than Hitachi Construction. However, STMicroelectronics is 1.08 times more volatile than Hitachi Construction Machinery. It trades about 0.01 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about -0.02 per unit of risk. If you would invest 2,500 in STMicroelectronics NV on September 20, 2024 and sell it today you would lose (10.00) from holding STMicroelectronics NV or give up 0.4% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
STMicroelectronics NV vs. Hitachi Construction Machinery
Performance |
Timeline |
STMicroelectronics |
Hitachi Construction |
STMicroelectronics and Hitachi Construction Volatility Contrast
Predicted Return Density |
Returns |
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.STMicroelectronics vs. Taiwan Semiconductor Manufacturing | STMicroelectronics vs. Broadcom | STMicroelectronics vs. Superior Plus Corp | STMicroelectronics vs. Norsk Hydro ASA |
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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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