Correlation Between Kroger and STMicroelectronics

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

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

Diversification Opportunities for Kroger and STMicroelectronics

-0.4

Correlation Coefficient

Kroger  STMicroelectronics

Very good diversification

The 3 months correlation between Kroger and STMicroelectronics is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Kroger Co and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Kroger 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 Kroger Co 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 Kroger i.e., Kroger and STMicroelectronics go up and down completely randomly.

Pair Corralation between Kroger and STMicroelectronics

Assuming the 90 days trading horizon Kroger Co is expected to generate 0.6 times more return on investment than STMicroelectronics. However, Kroger Co is 1.66 times less risky than STMicroelectronics. It trades about 0.04 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.03 per unit of risk. If you would invest  5,732  in Kroger Co on October 25, 2024 and sell it today you would earn a total of  139.00  from holding Kroger Co or generate 2.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Kroger Co  vs.  STMicroelectronics NV

Kroger

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Kroger is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Kroger and STMicroelectronics

The main advantage of trading using opposite Kroger and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kroger 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 Kroger Co 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.