Correlation Between STMicroelectronics and Renesas Electronics

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

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

Diversification Opportunities for STMicroelectronics and Renesas Electronics

0.6

Correlation Coefficient

STMicroelectronics  Renesas Electronics

Poor diversification

The 3 months correlation between STMicroelectronics and Renesas is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Renesas Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics Corp 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 ADR are associated (or correlated) with Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics Corp has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Renesas Electronics go up and down completely randomly.

Pair Corralation between STMicroelectronics and Renesas Electronics

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Renesas Electronics. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.13 times less risky than Renesas Electronics. The stock trades about -0.11 of its potential returns per unit of risk. The Renesas Electronics Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  731.00  in Renesas Electronics Corp on October 6, 2024 and sell it today you would lose (84.00) from holding Renesas Electronics Corp or give up 11.49% of portfolio value over 90 days.

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

STMicroelectronics NV ADR  vs.  Renesas Electronics Corp

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Renesas Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with STMicroelectronics and Renesas Electronics

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

The idea behind STMicroelectronics NV ADR and Renesas Electronics Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.