Correlation Between Toro and STMicroelectronics

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

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

Diversification Opportunities for Toro and STMicroelectronics

0.01

Correlation Coefficient

Toro  STMicroelectronics

Significant diversification

The 3 months correlation between Toro and STMicroelectronics is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and Toro 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 Toro Co are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics NV ADR has no effect on the direction of Toro i.e., Toro and STMicroelectronics go up and down completely randomly.

Pair Corralation between Toro and STMicroelectronics

Considering the 90-day investment horizon Toro Co is expected to generate 0.7 times more return on investment than STMicroelectronics. However, Toro Co is 1.44 times less risky than STMicroelectronics. It trades about 0.31 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.03 per unit of risk. If you would invest  8,210  in Toro Co on September 15, 2024 and sell it today you would earn a total of  622.00  from holding Toro Co or generate 7.58% return on investment over 90 days.

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

Toro Co  vs.  STMicroelectronics NV ADR

Toro

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toro Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Toro and STMicroelectronics

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

The idea behind Toro Co and STMicroelectronics NV ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.