Correlation Between STMicroelectronics and SEB SA

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and SEB SA 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 SEB SA 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 SEB SA, you can compare the effects of market volatilities on STMicroelectronics and SEB SA 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 SEB SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and SEB SA.

Diversification Opportunities for STMicroelectronics and SEB SA

-0.33

Correlation Coefficient

STMicroelectronics  SEB SA

Very good diversification

The 3 months correlation between STMicroelectronics and SEB is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and SEB SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEB SA 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 SEB SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEB SA has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and SEB SA go up and down completely randomly.

Pair Corralation between STMicroelectronics and SEB SA

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the SEB SA. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.49 times less risky than SEB SA. The stock trades about -0.07 of its potential returns per unit of risk. The SEB SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,020  in SEB SA on October 26, 2024 and sell it today you would lose (44.00) from holding SEB SA or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

STMicroelectronics NV ADR  vs.  SEB SA

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 latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

SEB SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEB SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SEB SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with STMicroelectronics and SEB SA

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

The idea behind STMicroelectronics NV ADR and SEB SA 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.