Correlation Between State Street and STMicroelectronics

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

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

Diversification Opportunities for State Street and STMicroelectronics

-0.17

Correlation Coefficient

State Street  STMicroelectronics

Good diversification

The 3 months correlation between State and STMicroelectronics is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and State Street 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 State Street Corp 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 State Street i.e., State Street and STMicroelectronics go up and down completely randomly.

Pair Corralation between State Street and STMicroelectronics

Assuming the 90 days trading horizon State Street Corp is expected to generate 0.52 times more return on investment than STMicroelectronics. However, State Street Corp is 1.91 times less risky than STMicroelectronics. It trades about 0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.0 per unit of risk. If you would invest  9,743  in State Street Corp on December 2, 2024 and sell it today you would earn a total of  52.00  from holding State Street Corp or generate 0.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

State Street Corp  vs.  STMicroelectronics NV

State Street Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, State Street 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

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 State Street and STMicroelectronics

The main advantage of trading using opposite State Street and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.