Correlation Between Mangalam Cement and STMicroelectronics

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

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

Diversification Opportunities for Mangalam Cement and STMicroelectronics

-0.59

Correlation Coefficient

Mangalam Cement  STMicroelectronics

Excellent diversification

The 3 months correlation between Mangalam and STMicroelectronics is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Mangalam Cement Limited and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Mangalam Cement 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 Mangalam Cement Limited 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 has no effect on the direction of Mangalam Cement i.e., Mangalam Cement and STMicroelectronics go up and down completely randomly.

Pair Corralation between Mangalam Cement and STMicroelectronics

Assuming the 90 days trading horizon Mangalam Cement Limited is expected to generate 0.87 times more return on investment than STMicroelectronics. However, Mangalam Cement Limited is 1.14 times less risky than STMicroelectronics. It trades about 0.11 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.02 per unit of risk. If you would invest  29,648  in Mangalam Cement Limited on February 5, 2024 and sell it today you would earn a total of  62,287  from holding Mangalam Cement Limited or generate 210.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.19%
Values	Daily Returns

Mangalam Cement Limited  vs.  STMicroelectronics NV

Mangalam Cement

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mangalam Cement Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Mangalam Cement exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Mangalam Cement and STMicroelectronics

The main advantage of trading using opposite Mangalam Cement and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mangalam Cement 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 Mangalam Cement Limited and STMicroelectronics NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.