Correlation Between STMicroelectronics and Legal General

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

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

Diversification Opportunities for STMicroelectronics and Legal General

-0.32

Correlation Coefficient

STMicroelectronics  Legal General

Very good diversification

The 3 months correlation between STMicroelectronics and Legal is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Legal General Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General Group 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 Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General Group has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Legal General go up and down completely randomly.

Pair Corralation between STMicroelectronics and Legal General

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Legal General. In addition to that, STMicroelectronics is 2.3 times more volatile than Legal General Group. It trades about -0.05 of its total potential returns per unit of risk. Legal General Group is currently generating about 0.1 per unit of volatility. If you would invest  22,680  in Legal General Group on December 27, 2024 and sell it today you would earn a total of  1,750  from holding Legal General Group or generate 7.72% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Legal General Group

STMicroelectronics

Risk-Adjusted Performance

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 unsteady 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.

Legal General Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Legal General may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with STMicroelectronics and Legal General

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

The idea behind STMicroelectronics NV and Legal General Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.