Correlation Between STMicroelectronics and MTI Wireless

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

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

Diversification Opportunities for STMicroelectronics and MTI Wireless

-0.08

Correlation Coefficient

STMicroelectronics  MTI Wireless

Good diversification

The 3 months correlation between STMicroelectronics and MTI is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and MTI Wireless Edge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTI Wireless Edge 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 MTI Wireless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTI Wireless Edge has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and MTI Wireless go up and down completely randomly.

Pair Corralation between STMicroelectronics and MTI Wireless

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the MTI Wireless. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.07 times less risky than MTI Wireless. The stock trades about -0.04 of its potential returns per unit of risk. The MTI Wireless Edge is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,055  in MTI Wireless Edge on December 29, 2024 and sell it today you would earn a total of  1,270  from holding MTI Wireless Edge or generate 31.32% 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.  MTI Wireless Edge

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 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.

MTI Wireless Edge

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTI Wireless Edge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MTI Wireless exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and MTI Wireless

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

The idea behind STMicroelectronics NV and MTI Wireless Edge 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.