Correlation Between Cardinal Health and STMicroelectronics

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

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

Diversification Opportunities for Cardinal Health and STMicroelectronics

-0.68

Correlation Coefficient

Cardinal Health  STMicroelectronics

Excellent diversification

The 3 months correlation between Cardinal and STMicroelectronics is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Cardinal Health 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 Cardinal Health 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 Cardinal Health i.e., Cardinal Health and STMicroelectronics go up and down completely randomly.

Pair Corralation between Cardinal Health and STMicroelectronics

Assuming the 90 days trading horizon Cardinal Health is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Cardinal Health is 1.55 times less risky than STMicroelectronics. The stock trades about -0.13 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,377  in STMicroelectronics NV on September 29, 2024 and sell it today you would earn a total of  35.00  from holding STMicroelectronics NV or generate 1.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Cardinal Health  vs.  STMicroelectronics NV

Cardinal Health

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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. 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 Cardinal Health and STMicroelectronics

The main advantage of trading using opposite Cardinal Health and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardinal Health 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 Cardinal Health 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.