Correlation Between STMicroelectronics and Anglo American

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

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

Diversification Opportunities for STMicroelectronics and Anglo American

0.12

Correlation Coefficient

STMicroelectronics  Anglo American

Average diversification

The 3 months correlation between STMicroelectronics and Anglo is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Anglo American plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American plc 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American plc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Anglo American go up and down completely randomly.

Pair Corralation between STMicroelectronics and Anglo American

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Anglo American. In addition to that, STMicroelectronics is 1.17 times more volatile than Anglo American plc. It trades about -0.25 of its total potential returns per unit of risk. Anglo American plc is currently generating about -0.29 per unit of volatility. If you would invest  3,057  in Anglo American plc on October 8, 2024 and sell it today you would lose (214.00) from holding Anglo American plc or give up 7.0% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Anglo American plc

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.

Anglo American plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Anglo American is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with STMicroelectronics and Anglo American

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

The idea behind STMicroelectronics NV and Anglo American plc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.