Correlation Between MEDICAL FACILITIES and STMicroelectronics

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

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

Diversification Opportunities for MEDICAL FACILITIES and STMicroelectronics

0.1

Correlation Coefficient

MEDICAL FACILITIES  STMicroelectronics

Average diversification

The 3 months correlation between MEDICAL and STMicroelectronics is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding MEDICAL FACILITIES NEW and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and MEDICAL FACILITIES 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 MEDICAL FACILITIES NEW 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 MEDICAL FACILITIES i.e., MEDICAL FACILITIES and STMicroelectronics go up and down completely randomly.

Pair Corralation between MEDICAL FACILITIES and STMicroelectronics

Assuming the 90 days horizon MEDICAL FACILITIES NEW is expected to generate 1.26 times more return on investment than STMicroelectronics. However, MEDICAL FACILITIES is 1.26 times more volatile than STMicroelectronics NV. It trades about 0.0 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.03 per unit of risk. If you would invest  1,034  in MEDICAL FACILITIES NEW on December 26, 2024 and sell it today you would lose (49.00) from holding MEDICAL FACILITIES NEW or give up 4.74% of portfolio value over 90 days.

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

MEDICAL FACILITIES NEW  vs.  STMicroelectronics NV

MEDICAL FACILITIES NEW

Risk-Adjusted Performance

Very Weak

Over the last 90 days MEDICAL FACILITIES NEW has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MEDICAL FACILITIES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MEDICAL FACILITIES and STMicroelectronics

The main advantage of trading using opposite MEDICAL FACILITIES and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MEDICAL FACILITIES 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 MEDICAL FACILITIES NEW 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.