Correlation Between STMicroelectronics and Sealed Air

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

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

Diversification Opportunities for STMicroelectronics and Sealed Air

0.34

Correlation Coefficient

STMicroelectronics  Sealed Air

Weak diversification

The 3 months correlation between STMicroelectronics and Sealed is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Sealed Air Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sealed Air Corp 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 Sealed Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sealed Air Corp has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Sealed Air go up and down completely randomly.

Pair Corralation between STMicroelectronics and Sealed Air

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.73 times more return on investment than Sealed Air. However, STMicroelectronics is 1.73 times more volatile than Sealed Air Corp. It trades about 0.0 of its potential returns per unit of risk. Sealed Air Corp is currently generating about -0.27 per unit of risk. If you would invest  2,505  in STMicroelectronics NV on October 11, 2024 and sell it today you would lose (22.00) from holding STMicroelectronics NV or give up 0.88% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Sealed Air Corp

STMicroelectronics

Risk-Adjusted Performance

0 of 100

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Sealed Air Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sealed Air Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sealed Air is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STMicroelectronics and Sealed Air

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

The idea behind STMicroelectronics NV and Sealed Air Corp 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.