Correlation Between STMicroelectronics and Nucor

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

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

Diversification Opportunities for STMicroelectronics and Nucor

0.03

Correlation Coefficient

STMicroelectronics  Nucor

Significant diversification

The 3 months correlation between STMicroelectronics and Nucor is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor 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 Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Nucor go up and down completely randomly.

Pair Corralation between STMicroelectronics and Nucor

Assuming the 90 days trading horizon STMicroelectronics is expected to generate 1.73 times less return on investment than Nucor. But when comparing it to its historical volatility, STMicroelectronics NV is 2.51 times less risky than Nucor. It trades about 0.17 of its potential returns per unit of risk. Nucor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,080  in Nucor on October 25, 2024 and sell it today you would earn a total of  255.00  from holding Nucor or generate 4.19% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Nucor

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.

Nucor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with STMicroelectronics and Nucor

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

The idea behind STMicroelectronics NV and Nucor 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 Transaction History module to view history of all your transactions and understand their impact on performance.