Correlation Between STMicroelectronics and Japan Real

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

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

Diversification Opportunities for STMicroelectronics and Japan Real

0.11

Correlation Coefficient

STMicroelectronics  Japan Real

Average diversification

The 3 months correlation between STMicroelectronics and Japan is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Japan Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Real Estate 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 Japan Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Real Estate has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Japan Real go up and down completely randomly.

Pair Corralation between STMicroelectronics and Japan Real

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 2.14 times more return on investment than Japan Real. However, STMicroelectronics is 2.14 times more volatile than Japan Real Estate. It trades about 0.02 of its potential returns per unit of risk. Japan Real Estate is currently generating about -0.12 per unit of risk. If you would invest  2,505  in STMicroelectronics NV on September 12, 2024 and sell it today you would earn a total of  28.00  from holding STMicroelectronics NV or generate 1.12% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Japan Real Estate

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.

Japan Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Pair Trading with STMicroelectronics and Japan Real

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

The idea behind STMicroelectronics NV and Japan Real Estate 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.