Correlation Between Commerzbank and STMICROELECTRONICS

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

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

Diversification Opportunities for Commerzbank and STMICROELECTRONICS

0.89

Correlation Coefficient

Commerzbank  STMICROELECTRONICS

Very poor diversification

The 3 months correlation between Commerzbank and STMICROELECTRONICS is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Commerzbank AG and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Commerzbank 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 Commerzbank AG 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 Commerzbank i.e., Commerzbank and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Commerzbank and STMICROELECTRONICS

Assuming the 90 days trading horizon Commerzbank is expected to generate 1.51 times less return on investment than STMICROELECTRONICS. But when comparing it to its historical volatility, Commerzbank AG is 1.83 times less risky than STMICROELECTRONICS. It trades about 0.15 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,004  in STMICROELECTRONICS on April 2, 2025 and sell it today you would earn a total of  606.00  from holding STMICROELECTRONICS or generate 30.24% return on investment over 90 days.

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

Commerzbank AG  vs.  STMICROELECTRONICS

Commerzbank AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward-looking signals, Commerzbank unveiled solid returns over the last few months and may actually be approaching a breakup point.

STMICROELECTRONICS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STMICROELECTRONICS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, STMICROELECTRONICS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerzbank and STMICROELECTRONICS

The main advantage of trading using opposite Commerzbank and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commerzbank 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's long position.

The idea behind Commerzbank AG and STMICROELECTRONICS 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.