Correlation Between Shenzhen Investment and STMicroelectronics

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

By analyzing existing cross correlation between Shenzhen Investment Limited and STMicroelectronics NV, you can compare the effects of market volatilities on Shenzhen Investment and STMicroelectronics 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 Shenzhen Investment with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Investment and STMicroelectronics.

Diversification Opportunities for Shenzhen Investment and STMicroelectronics

0.41

Correlation Coefficient

Shenzhen Investment  STMicroelectronics

Very weak diversification

The 3 months correlation between Shenzhen and STMicroelectronics is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Investment Limited and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Shenzhen Investment 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 Shenzhen Investment Limited are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Shenzhen Investment i.e., Shenzhen Investment and STMicroelectronics go up and down completely randomly.

Pair Corralation between Shenzhen Investment and STMicroelectronics

Assuming the 90 days horizon Shenzhen Investment Limited is expected to generate 2.68 times more return on investment than STMicroelectronics. However, Shenzhen Investment is 2.68 times more volatile than STMicroelectronics NV. It trades about 0.04 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.07 per unit of risk. If you would invest  10.00  in Shenzhen Investment Limited on October 12, 2024 and sell it today you would earn a total of  1.00  from holding Shenzhen Investment Limited or generate 10.0% return on investment over 90 days.

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

Shenzhen Investment Limited  vs.  STMicroelectronics NV

Shenzhen Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Shenzhen Investment reported solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shenzhen Investment and STMicroelectronics

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

The idea behind Shenzhen Investment Limited and STMicroelectronics NV 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 CEOs Directory module to screen CEOs from public companies around the world.