Correlation Between STMicroelectronics and Nordon Indstrias

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

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

Diversification Opportunities for STMicroelectronics and Nordon Indstrias

0.03

Correlation Coefficient

STMicroelectronics  Nordon Indstrias

Significant diversification

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

Pair Corralation between STMicroelectronics and Nordon Indstrias

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.24 times more return on investment than Nordon Indstrias. However, STMicroelectronics is 1.24 times more volatile than Nordon Indstrias Metalrgicas. It trades about 0.01 of its potential returns per unit of risk. Nordon Indstrias Metalrgicas is currently generating about -0.07 per unit of risk. If you would invest  15,150  in STMicroelectronics NV on December 28, 2024 and sell it today you would lose (105.00) from holding STMicroelectronics NV or give up 0.69% 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.  Nordon Indstrias Metalrgicas

STMicroelectronics

Risk-Adjusted Performance

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.

Nordon Indstrias Met

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nordon Indstrias Metalrgicas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with STMicroelectronics and Nordon Indstrias

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

The idea behind STMicroelectronics NV and Nordon Indstrias Metalrgicas 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.