Correlation Between STMicroelectronics and Metalurgica Gerdau

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

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

Diversification Opportunities for STMicroelectronics and Metalurgica Gerdau

0.08

Correlation Coefficient

STMicroelectronics  Metalurgica Gerdau

Significant diversification

The 3 months correlation between STMicroelectronics and Metalurgica is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau 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 Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between STMicroelectronics and Metalurgica Gerdau

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Metalurgica Gerdau. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.27 times less risky than Metalurgica Gerdau. The stock trades about -0.01 of its potential returns per unit of risk. The Metalurgica Gerdau SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  995.00  in Metalurgica Gerdau SA on October 23, 2024 and sell it today you would lose (13.00) from holding Metalurgica Gerdau SA or give up 1.31% 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.  Metalurgica Gerdau SA

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 somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metalurgica Gerdau

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMicroelectronics and Metalurgica Gerdau

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

The idea behind STMicroelectronics NV and Metalurgica Gerdau 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.