Correlation Between STMicroelectronics and Mitsubishi Gas

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

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

Diversification Opportunities for STMicroelectronics and Mitsubishi Gas

-0.37

Correlation Coefficient

STMicroelectronics  Mitsubishi Gas

Very good diversification

The 3 months correlation between STMicroelectronics and Mitsubishi is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Mitsubishi Gas Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Gas Chemical 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 Mitsubishi Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Gas Chemical has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Mitsubishi Gas go up and down completely randomly.

Pair Corralation between STMicroelectronics and Mitsubishi Gas

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Mitsubishi Gas. In addition to that, STMicroelectronics is 1.35 times more volatile than Mitsubishi Gas Chemical. It trades about -0.02 of its total potential returns per unit of risk. Mitsubishi Gas Chemical is currently generating about 0.04 per unit of volatility. If you would invest  1,280  in Mitsubishi Gas Chemical on September 22, 2024 and sell it today you would earn a total of  370.00  from holding Mitsubishi Gas Chemical or generate 28.91% 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.  Mitsubishi Gas Chemical

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.

Mitsubishi Gas Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Gas Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mitsubishi Gas is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STMicroelectronics and Mitsubishi Gas

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

The idea behind STMicroelectronics NV and Mitsubishi Gas Chemical 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.