Correlation Between STMicroelectronics and Charter Communications

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

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

Diversification Opportunities for STMicroelectronics and Charter Communications

-0.5

Correlation Coefficient

STMicroelectronics  Charter Communications

Very good diversification

The 3 months correlation between STMicroelectronics and Charter is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Charter Communications Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Charter Communications go up and down completely randomly.

Pair Corralation between STMicroelectronics and Charter Communications

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.14 times less risky than Charter Communications. The stock trades about -0.06 of its potential returns per unit of risk. The Charter Communications Cl is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  43,616  in Charter Communications Cl on October 4, 2024 and sell it today you would lose (8,991) from holding Charter Communications Cl or give up 20.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.81%
Values	Daily Returns

STMicroelectronics NV  vs.  Charter Communications Cl

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 comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Charter Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications Cl are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Charter Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with STMicroelectronics and Charter Communications

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

The idea behind STMicroelectronics NV and Charter Communications Cl 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.